Japanese Candlestick Patterns: What Can a Doji Tell You?

To the average trader, candlestick patterns are just a bunch of crosses and odd shapes with weird names, like the abandoned baby, three white soldiers, and piercing lines.

But as odd as they may sound, even the craziest one can help give you a significant trading edge.

Look at the doji cross, for example. Typically found at top or bottom of trend, taking on a formation of a cross, they’re an indication of indecision among bulls and bears.  They’re typically considered a sign of potential reversal in price direction.

Quite literally, we’re looking at a virtual tug of war between buyers and sellers.


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Look at the EUR/GBP for example.  After a brief pullback in May 2017, we can clearly see a doji cross, which marked the bottom of trend.  Then again, we never really want to rely on a sole indicator to buy on.  We must confirm our findings at all times with other indicators, such as Bollinger Bands, RSI and Money Flow.

Or let’s look at one of my favorite doji cross examples with Lowe’s (LOW).

In late June 2016, for instance, a doji appeared at bottom of trend, an indication that bulls and bears were undecided.  It also marked a turning point for the stock off that low price point. 

Then, at the start of July 2016, a doji-cross showed up at top of trend, another indication that bulls and bears were undecided.  It was a clear sign that a reversal may have been in the cards, which it was.  Shortly after, the stock would begin to reverse lower.  For the second time, a candle predicted a potential change of direction, as dictated by psychology.

We can even spot those tug of war battles in the price of oil, too.

In fact, in mid-February 2016, we can see a doji cross marking bottom of trend at a price of $26.05.  We can also see a similar cross in late January 2016 prior to a fall from $34 to $26.05, as well.

Again, candles may have some ridiculous names, but they should never be ignored.  Unless, of course you’re not really interested in making money.


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