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What is a Doji Candlestick:
How to Trade the Doji Candlestick Pattern

The Doji Candlestick is a pattern used in technical analyses of trend reversals in a market. Traders can study past price movements through Doji candlesticks and predict trends in the Forex market. Since the Doji Candlestick pattern consists of open and close prices of a currency pair, they can help you confirm a potential high or low price point.

What is a Doji Candle?

A Doji Candlestick represents a virtually equal open and close price of a currency pair, signifying an indecision between buyers and sellers. The patterns formed by a Doji Candlestick often look like a plus, cross, or inverted cross sign. The Doji Candlestick is usually found at the top or bottom of a particular trend and sends signals of possible bullish or bearish reversals.

  • The top portion of the Doji Candlestick refers to the high price point of the currency pair.
  • The bottom portion of the Doji Candlestick refers to the low price point of the currency pair.
  • The horizontal line, body, represents the difference between the open price and the close price of the currency pair. When the closing price is more than the opening price, it is often coloured in green, and when the opening price is more than the closing price, it is in red.
Doji Candlestick Graphic Doji Candlestick Graphic

How is the Doji Candlestick pattern formed?

The Doji Candlestick pattern is formed whenever the Forex market opens at a price and traders that go long make an effort to push prices up by purchasing more of the currency pair, whereas traders that go short reject increasing prices and push it back down by either selling or not entering the market at all. This situation forms a negating effect between the buyers and sellers and leads to the closing and opening prices being similar to each other. The Doji Candlestick represents a state of ‘rest’ as the bulls and bears fight each other to keep the prices at levels that suit them the best. Often, Doji shows an upcoming reversal that indicates both parties gaining momentum over a certain period. For example, you are trading USD/GBP, which opens at $100. As both buyers and sellers enter the market, buyers try to push the currency pair’s price up by buying more of the currency pair. However, sellers reject this price increment and start selling to keep prices low. Hence, USD/GBP hits a high of $107 and a low of $95, but closes at $102. This creates a Doji Candlestick pattern with the opening and closing prices similar to each other but still benefits the traders by closing at $2 more than the opening price.

Types of Doji Candlesticks

Standard Doji

The standard Doji Candlestick pattern is a single candlestick that has two short wicks equal in length. It indicates the currency pair price moving in a short range, indicating extreme indecision in the market.

Doji Candlestick Graphic

Long-legged Doji

The long-legged Doji has a longer extension of the wick. This indicates the currency pair prices moving dramatically over a timeframe but closing almost at the same price where it opened. When trading with the long-legged Doji, you may place the stop-loss order at the top of the upper wick to minimise losses.

Doji Candlestick Graphic

Gravestone Doji

The Gravestone Doji appears when the currency pair’s price opens and closes at a lower price range. This means that as soon as the market opened, buyers pushed the prices up but were not able to maintain the bullish momentum until the market closed.

Doji Candlestick Graphic

Dragonfly Doji

The Dragonfly Doji is the exact opposite of the Gravestone Doji. It appears either at the bottom of a market downtrend or at the top-most of a market uptrend. It sends signals of a potential change in market direction as the price closes at the most extreme of the wick. This indicates that the currency pair prices did not go beyond the opening price, signaling a bullish trend reversal with a highly extended lower wick.

Doji Candlestick Graphic

4 price Doji

The 4 price Doji Candlestick pattern is a horizontal line that does not have a wick. This signifies a very indecisive market as the high, low, open, and close prices are the same. It also indicates a quiet market and is seen with currency pairs that have a low trading volume.

Doji Candlestick Graphic

How do you trade the Doji Candlestick pattern?

Combining the Doji Candlestick pattern with other indicators like the stochastic oscillator or momentum indicators help you strategise better in the market. When the Doji Candlestick is at the bottom of a downtrend, it indicates a possible bullish reversal. When it is at the top of an uptrend, it indicates a possible bearish reversal.

Trade the Doji Candlestick pattern

The Doji Candlestick pattern sends ideal trading signals for both bullish and bearish markets. Blueberry Markets provides you with several pre-installed indicators and tools that you can use to improve your trading strategy.

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