Sunday 23 January 2011

How to use doji cndlestick patterns

Doji:

The doji is a characteristic figure whose opening level is equal to the closing level. Indeed, one can interpret this figure as one in which UT Bulls and Bears have delivered a battle after which there was no winner.

Interpretation:

If the trend prior to the appearance of a doji is bullish (bearish), it means that buyers (sellers) during the firing up (down) because their buying frenzy (Panic selling) was very strong.


But beware, a doji should under no circumstances be regarded as a trigger signal to buy or sell, it shows only a hesitation in the market.


It represents a meeting point between bullish and bearish that depending on the configuration of time may be followed by a reversal, or a continuation of the status quo, so it is important to study the environment in which the doji appears rather that the latter himself.

Thus, it appears after a large white candlestick (black) that comes with a unidirectional pattern, the signal is very strong and announced, with high probability a reversal if the ongoing closure of Candlestick following are beyond the distal doji (see graph below) or a continuation of the trend if the ongoing closure of Candlestick following are beyond the upper end of the doji (see graph below), the only market force that managed to emerge d an area of uncertainty.

However, if a doji forms after a series of candlesticks with small bodies, we can consider that it gives no signal.


Note: When a doji is formed on a trough (peak), and is therefore synonymous with reversal, it is highly likely that these levels become a support (resistance).


The different types of doji


The long-legged doji or high wave

For this type of doji, there are again three alternatives:


The doji cross gives a bullish signal when it appears after a downtrend, while the doji cross inverted gives bearish signal when it appears after an uptrend.

The doji water-carrier in turn, demonstrates the strong market indecision.


The gravestone doji in


The opening price on the lowest of the UT and although they manage to score new highs, sellers regain control before the end of the battle and forcing the prices to recede to their opening level. This configuration gives a very bearish signal when it occurs during an uptrend. More shade, the stronger the signal is bearish. Indeed, consider the shade high as an area offering significant.


The dragonfly doji in or doji dragon


The opening price on the highest of the UT and although they manage to mark a new low, buyers regain control before the end of the battle and carry prices to their opening level. This configuration gives a very bullish signal when it occurs during a downtrend. More shade is low, the signal is more bullish. Indeed, consider the shade as a low area demand.


The doji without wick



This is a particular doji that appears almost exclusively on very illiquid markets. For such a doji appears, it is no exchange is made or that the carry trade is all one and the same price on the UT. It really does not start signal on the direction of the market but that it's a market that lacks liquidity and it is therefore more risky to enter it because it will be difficult to leave without leave feathers.
Doji: Application to the trading and investment:

The range of doji shows key levels which when crossed (upwards or downwards) by following the latter candlesticks are points of entry or exit privileged.

In the case of a reversal to the downside, we'll wait to closing under the low end of the doji to place a sell order. In the case illustrated, it will be realized by a sale at the opening of the second black candlestick. The protective stop is placed just above the upper end of the doji, which corresponds to the point of invalidating the hypothesis.

In the case of a continuation of the increase, we will wait to close above the doji's upper extremity to place a purchase order. In the case illustrated, it will be materialized by a purchase at the opening of the second white candlestick after the doji. The protective stop is placed just below the low end of the doji, which corresponds to the point of invalidating the hypothesis.