What does Doji mean?

What is a Doji? A Doji is defined as a unique pattern in a candlestick chart that shows when the opening and closing prices of a financial asset being traded are equal or only have small differences. In Japanese, the meaning of Doji is “mistake”, which refers to the fact that having equal opening and closing prices is unlikely or only happens rarely.

A Doji candlestick can look like a cross or a plus sign, with a small or non-existent body. A Doji can represent indecision in the market, with both sellers and buyers in doubt. As a result, the price is unchanged.

Some analysts consider a Doji candlestick to be a sign of reversal – either upward or downward. It can also be seen as a continuation pattern. The Doji candlestick often occurs during consolidation after the security move has been significantly higher or lower. 

Doji examples

An example of Doji is when bulls push prices upward after the market opens, but this is rejected and the prices are pushed lower by bears. Then when the bears are unable to hold the price lower, the bulls push prices back to their opening levels.  

A Doji candlestick can also form when prices fall lower first but subsequently move up. 

Types of Doji 

According to the Corporate Finance Institute, there are four types of Doji, as follow:

•  Neutral Doji

A neutral Doji is shaped like a plus sign. This forms when the buying and selling powers for an asset are at an equilibrium.

•  Long-legged Doji or ‘Rickshaw Man’

A long-legged Doji shows that the price of a traded asset closes in the centre of the day’s high and low. This Doji type, which looks like a cross, shows significant indecision among buyers and sellers in the market.

It is also sometimes also called a ‘Rickshaw man’ – a type of long-legged Doji candlestick where the body can be found at or very near the middle of the candle.

• Gravestone Doji

A gravestone Doji is shaped like an inverted ‘T’. It shows that an asset opened and closed at the day’s low. The pattern typically appears at the bottom or end of a downward trend. 

The longer upper side of the gravestone Doji, also known as a ‘shadow’, suggests that the present market trend may be coming to an end and that the market could now be turning around.

• Dragonfly Doji

A dragonfly Doji looks like an upright ‘T’. This signifies that a stock or other financial asset opened and closed at the day’s high. 

This pattern  tends to form at the peak of an upward trend and signals that the market may change its direction. The dragonfly Doji also suggests a high level of indecision from both sellers and buyers.