The long legged doji is a variation of the doji but with long tails at the top and bottom. I find it only has value when it forms at the correct place such as support or resistance. The long legged doji is a picture of extreme indecision and volatility. It usually appears when there is big news concerning the stock or when there is a big gap in the stock. Market participants are adjusting to the new environment and are giving the stock a new price valuation.
The picture above shows how a long legged doji looks like. The stock opens and close at around the same price. During the day, the stock has a volatile move up and down. That is why the candle has a long wick at the top and bottom.
In my opinion I find that the long legged doji does not have much predictive value unless it happens at support or resistance areas. Secondly, the price must trade above or below the pattern before a reversal signal is confirmed.
In the chart above, AAP formed a long legged doji around mid October. The pattern hinted of a reversal but there was no confirmation for the next 2 weeks. It was only around mid November that the stock traded above the highs of the long legged doji.
In the chart above, ABBV had a big gap down and formed a long legged doji. It must have been some news that made the stock gap down and traded very volatile. The presence of a long legged doji and not a big bearish bar hinted to us that this stock might have a reversal soon. There was no confirmation for the next 5 days. On the 6th day, the stock moved higher and traded above the highs of the long legged doji. This confirmed the reversal signal that the long legged doji gave us.
In the chart of ADSK above, the first long legged doji had little predictive value because prices kept rising. The stock had a gap down later and another long legged doji formed. The doji formed because of the gap down but buyers saw support at the areas and push it back to close at the same price.
The doji gave us hints that the gap down may not be that bearish after all. A red bearish bar appeared but over the coming days, the stock rose higher and went above the highs of the long legged doji. This gave us conformation of the reversal signal.
A long legged doji pattern does not work all the time. Just because it appears in the stock chart it does not mean there will be a reversal of some sought. In early December, the stock had a few days drop and formed a long legged doji. The next day, the stock traded above the highs of the doji to give a confirmation. However, the stock could not rise and eventually fell.
Around mid January, another long legged doji formed. It is not a very clean one but it is a variation of the long legged doji. Some may even call it a topping tail. Whatever it is, the small body and long tail told us that buyers might have exhausted themselves. Combining it with the signal that the Bollinger Band and stochastics gave us, the reversal pattern became more potent.
The chart above shows how powerful a long legged doji can be when it forms at the 200 MA support. If you notice carefully, the stock was also forming a double bottom. When the stock break a downtrendline and moved above the highs of the long legged doji, it confirmed the reversal signal that the doji gave.
So you see, the long legged doji by itself does not give that much great signal. But when you combine it with other technical analysis such as trendlines and support and resistance analysis, you can gain a very clear picture of what will happen.
Oct 30, 18 06:35 AM
As we close out the month of October 2018, what is in store for us? Let us take a look at the charts and see what they might be telling us.
Oct 26, 18 10:47 AM
Technical analysis of US stock market for Friday October 26 2018.
Oct 26, 18 06:23 AM
With the recent crash and sell off one wonders how far Dow Jones can fall. Let us take a look at what the chart is telling us on the possibility of Dow's collapse.
Aug 16, 18 07:28 AM
In this lesson, we will learn how and why BMY manage to bottom out and start a new uptrend.
Aug 14, 18 08:19 AM
In this lesson we will learn and examine why Pentamaster was able to recover all of its losses to start a new uptrend and achieve new highs.