Doji
A single candlestick with a very small body, where the opening and closing prices are nearly identical, reflecting indecision between buyers and sellers over that period.
A doji is a single candlestick (see Kaavon's "Candlestick" glossary definition) characterized by a very small or absent body, formed when an asset's opening and closing prices for that period are nearly identical, regardless of how far price moved up or down during the period before closing back near where it opened. This reflects a period of indecision, where neither buyers nor sellers were able to gain a decisive advantage by the close.
A doji's significance depends heavily on where it appears: a doji forming after a sustained uptrend or downtrend is often interpreted as a potential early warning sign that the prevailing trend is losing momentum and a reversal may follow, while a doji forming in the middle of a sideways, range-bound market carries much less significance, since indecision is simply the norm in that kind of environment. As with other single-candle patterns, most technical analysts treat a doji as a signal worth watching for confirmation in subsequent price action, rather than as a standalone, actionable signal on its own.
Examples
- A doji forming after a long, sustained uptrend is often watched as an early warning sign that buying momentum may be fading, rather than as a guaranteed reversal signal on its own.
- A doji appearing in the middle of a sideways, range-bound market carries much less significance than one appearing after a strong, sustained directional move.