According to crypto technical analysts, the price reflects all known information about a crypto asset. However, previous price performance has no bearing on future price performance, and a crypto asset’s current price may have nothing to do with its true or intrinsic value. As a result, technical analysts use tools like candlestick patterns to help them sift through the noise and identify the best trades. Doji is one such candlestick pattern. The 'cross' shape of the Doji candlestick, also known as the Doji star, distinguishes it from other candlestick patterns.
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<source: TradingwithRayner>
A Doji candle is a candlestick formation that occurs when the open and close prices are close together, and the shadows are long. The wick is composed of a vertical Doji pattern line, while the body is composed of a horizontal line. Doji differs from other candlestick patterns in that it lacks a real body. The opening and closing values are the same, but the high and low values differ. A "Rickshaw Man" is a long-legged Doji with long upper and lower shadows.
When the market opens, a Doji candlestick forms and bullish traders push prices higher. When bearish traders attempt to reject the higher price, the price falls. The body of the Doji candle reflects the difference between an asset's opening and closing prices.
The top wick represents the highest price, while the bottom wick represents the lowest. There are numerous ways to trade Doji candlestick patterns. However, in order to execute higher probability trades, traders should always look for signals that complement what the Doji candlestick is suggesting. Furthermore, when trading the Doji, it is critical to use sound risk management to limit losses if the trade does not work out.
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<source: Bybit>
Let’s take an example. Assuming Bitcoin's price opened at $55,903, buyer demand was higher. This caused the price to rise to a high of $57,135. The sellers then attempted to lower the price to a low of $54,715. The day, however, concluded with a closing and opening price of $55,903. This formed a long-legged Doji, as shown in the image. It indicates that buyers and sellers have reached an impasse. It implies that no directional bias exists on that particular day. Doji candlestick patterns are classified into four types: Common Doji, Gravestone Doji, Dragonfly Doji, 4 piece Doji and Long-Legged Doji.
It's worth noting that the Doji pattern does not always indicate reversal or continuation but rather indecision. Such candles are frequently seen during periods of rest after strong uptrends or downtrends. After a brief pause, the market may resume its upward trajectory. However, it also indicates that the current trend is weakening. It is difficult to confirm the Doji signals without confirmation from other technical indicators. However, it suggests a significant indication of both bulls and bears in the market. Although uncommon, a Doji candlestick generally indicates a trend reversal for analysts, though it can also indicate uncertainty about future prices. In general, candlestick charts can reveal market trends, sentiment, momentum, and volatility.
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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.