Doji

A doji is a type of candlestick pattern used in technical analysis to represent market indecision. It forms when the opening and closing prices of a security are nearly equal for a given trading period, resulting in a candlestick with a very small body. Depending on the shadows, several doji variants are recognized, including standard doji, long-legged doji, dragonfly doji, gravestone doji, and four-price doji.

The long-legged doji has long upper and lower shadows, indicating higher intraperiod volatility with a near-equal open and close. A dragonfly doji features a long lower shadow with a tiny or absent upper shadow and a body near the top of the range, while a gravestone doji shows a long upper shadow with a small body near the bottom. The doji family thus reflects different patterns of price movement within the period.

Interpretation varies with context. A doji signals indecision between buyers and sellers and does not by itself predict direction. Its significance is typically heightened when it appears after a sustained uptrend or downtrend, potentially signaling a reversal. However, confirmation from subsequent price action or other indicators is usually required before acting on the signal.

Usage and limitations: Doji are commonly used within candlestick chart analysis alongside trendlines, support and resistance levels, volume, and momentum indicators. Their reliability depends on the broader chart context and market conditions; false signals can occur in ranging or consolidating markets.

History: The doji originates from Japanese candlestick charting techniques developed in the 18th century by rice trader Munehisa Homma. The term doji comes from a Japanese word meaning "same" or "equal," reflecting the minimal difference between opening and closing prices.