What is a Doji?

Hi Jane, thanks for being here.

Doji refers to a session where the security candlestick pattern features an equal opening and closing price. Doji candle can have a shape of a cross, inverted cross or plus sign. If it’s alone, Doji is a neutral candle, but it can also be a part of other important patterns. Doji takes shape when the opening and closing price of a security are virtually equal over a certain time period. In technical analysis, doji usually indicates a reversal pattern. Its name is derived from a Japanese word "doji" which means blunder or mistake, based on the rarity of cases where the open and close price are the same.

While Doji typically indicates indecision among market participants, it can also signify a slowing momentum of the current trend.

The pattern is often not very useful to investors as it can worry them. For instance, if the market is currently in an uptrend, the appearance of a Doji star could indicate a slowdown of the bullish momentum, causing traders to exit the market. 

That’s why it is very important to analyze this pattern in tandem with other technical indicators or your specific exit plan. Investors should exit the market only if they confirm Doji indications with other signals and technical indicators. This is because sometimes investors stay indecisive only for a brief period before continuing to push the market in the same direction. For that reason, performing proper analysis of the market is of utmost importance before exiting a trade.

If, however, you decide to make a move, you should always implement a proper risk management strategy to cut losses if the trade doesn’t go your way.