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Charting Education Dojis
One of the most important things taught at the BetterTrades classes in Atlanta concerns the doji, the sign of indecision in the stock market.
A doji is a symbol formed on a chart that uses Japanese candlesticks. They occur when the opening price of a stock is near or identical to the closing price. This forms a doji, which looks like a plus sign, a cross or an inverted cross on the price chart. Early in the educational process with BetterTrades a student learns that a doji is a neutral pattern and means indecision; neither the bulls nor the bears had control of the stock that day and the future is uncertain.
A regular doji occurs when the open and close are right on top of each other in the middle of the candle body. This indicates the price was pushed higher by the bulls, but dragged back down by the bears. At the end of the day neither side had captured the flag.
A tombstone or gravestone doji is formed when a stock opens and begins to make a rally, only to run out of steam. The bears then knock the rally back to where it began, leaving the stock at a flat level. This leaves the doji looking like an upside-down T, with a long upper shadow and no lower shadow. This may indicate the bullish run is about to expire.
A dragonfly doji is formed when the open, high and close are equal and the low creates a long lower shadow. This candlestick looks like a T, with a long lower shadow and no upper shadow. It indicates that sellers dominated trading and drove prices lower during the session, but buys resurfaced and pushed the price back to the opening level and the high of session.
A long-legged doji has long upper and lower shadows that are almost equal in length. They reflect the indecision. The long-legged doji indicates that the stock traded well above and well below the opening price, but closed virtually even with the open.
The presence of dojis on a price chart can indicate something is about to happen. BetterTrades teaches students to be aware of dojis and keep an eye on potential moves. When a doji occurs at a critical support or resistance level they could signal a change in direction. There's no guarantee which way the stock will head, but indicates that traders are may be ready to push the stock.
