Doji
A Doji forms when a candle's open and close prices are nearly equal, creating a cross or plus shape with little to no body. It signals indecision between buyers and sellers and can indicate a potential reversal, especially after a sustained trend.
Doji candlestick pattern diagram
Pattern Anatomy
- Open and close are at or very near the same price (body is tiny or absent)
- Upper and lower wicks can vary in length
- Looks like a cross, plus sign, or inverted cross depending on wick proportions
- Can appear in any trend context
How to Interpret
- After an uptrend: may signal buying exhaustion, potential reversal down
- After a downtrend: may signal selling exhaustion, potential reversal up
- In a sideways market: often meaningless — just confirms ongoing indecision
- Always look for confirmation from the next candle before acting
- Volume context matters — a Doji on high volume is more significant
How Engulfy Detects the Doji
- The candle’s body (|close - open|) must be very small relative to the total range (high - low).
- The total range must be greater than zero (filters out perfectly flat bars).
- No wick length requirements — a Doji can have long or short shadows in either direction.
A Doji can also qualify as a Dragonfly Doji or Gravestone Doji if its wicks meet additional criteria. Engulfy may report multiple patterns for the same candle.
Expert References
- Steve Nison, Japanese Candlestick Charting Techniques — first introduced the Doji to Western traders, calling it one of the most important single-candle patterns
- Thomas Bulkowski, Encyclopedia of Candlestick Charts — found Doji patterns act as reversal signals approximately 51-54% of the time, only marginally better than chance
Controversy & Limitations
- With a 51-54% reversal rate, the Doji alone is barely better than a coin flip
- Extremely common — appears frequently in low-volatility periods where it carries no meaning
- More useful as a "heads up" than a trading signal — context and confirmation are essential
- Some analysts argue the Doji is over-emphasized in popular trading education