Doji Candlestick Pattern

The Doji Japanese candlestick pattern makes money in the crypto, forex, and stock markets.

Are you surprised?

If you are, you likely need to go back to the charts and study price action – or just finish this blog article.

With that in mind, let’s understand how history tells us to profit from these simple doji candles.

What Is a Doji Candlestick Pattern

Type of Doji Candlestick Patterns Illustration

A doji candlestick pattern is a single-bar pattern that supposedly represents indecision. There are multiple types of doji candlestick patterns, including the common, long-legged, dragonfly, and gravestone doji.

Technical analysts use doji to refer to all of the above patterns but specifically call out a doji by its proper name when they want to be more specific. 

I’ll cover the common doji pattern in this post. And for the sake of brevity, I’ll refer to the common doji sometimes as just the doji candlestick, and I’ll provide links and backtest results to the other similar doji patterns below.

How to Identify the Doji Candlestick Pattern

Common Doji Candlestick Pattern Illustration

The following are the requirements for a valid common doji pattern:

  • The open and close must be equal or very similar.
  • The open and close price must not be near the high or low.
  • The candle’s range must be similar to prior trading ranges.
  • The pattern does not require a trend.

In other words, a common doji must not close near the high or low, and the range must be the same or smaller than prior candles.

Let’s look at an example of a common doji on our candlestick charts.

Doji Candlestick Pattern Identification (AAPL)

We can see the doji candlestick chart pattern on the Apple (AAPL) daily chart on October 25th, 2021.

The opening and closing prices are almost identical, occurring near the midpoint of the day’s price action.

With the doji pattern identified, what type of trading strategy do data-driven traders employ for this single bar pattern?

How to Trade the Doji Candlestick Pattern

While the doji pattern doesn’t require a trend, the pattern is best traded as a bullish reversal in the stock and crypto markets and as a bearish reversal in the forex markets using a 5:1 risk-reward ratio.

In other words, data-driven trading strategies expect reversals around these key doji formations.

Let’s take a look at an example.

Doji Trade Setup (ABCL)

We can see the doji candlestick pattern on the Abcellera (ABCL) daily chart on December 29th, 2021. 

The opening price is roughly equal to the closing price, appearing near the midpoint of the day’s price range.

With the pattern identified, smart traders enter long on a break of the doji candlestick pattern’s close with a stop loss set just below the low.

Additionally, these professional traders enter short, assuming the doji was below the fifty-day moving average, on the break of the doji candlestick’s close with a stop loss set slightly above the high of the doji.

How much profit would we make on this simple trading strategy on a candlestick pattern that occurs so frequently?

Let’s find out.

Does the Doji Candlestick Pattern Work? (Backtest Results)

Using the following rules, I backtested the doji candlestick pattern on the daily timeframe in the crypto, forex, and stock markets.

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5. 
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits are discussed in the how-to trade section above.
  • Confirmation must occur within three days of the pattern signal.

Doji Bullish Backtest Results

cryptoforexstock
pattern_namedojidojidoji
pattern_categoryindecisionindecisionindecision
pattern_bars111
required_trendnonenonenone
traded_asbullishbullishbullish
stop_bar_typelowlowlow
entry_bar_typehighhighhigh
risk_reward555
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516952
pattern_tickers25912856600
patterns451119513001980811
trades196774998931084037
confirm_perc0.440.530.55
wins5885143152251206
losses13792356741832831
win_perc0.2990.2860.232
trade_bars9892218628627400300
avg_trade_bars5.033.736.83
avg_win_bars6.094.1611.84
avg_loss_bars4.573.555.31
cons_wins121338
cons_losses3923541
edge0.7950.720.39
cryptoforexstock
pattern_namedojidojidoji
pattern_categoryindecisionindecisionindecision
pattern_bars111
required_trendnonenonenone
traded_asbullishbullishbullish
stop_bar_typelowlowlow
entry_bar_typeclosecloseclose
risk_reward555
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516952
pattern_tickers25912856600
patterns439699835032200700
trades285366234311611217
confirm_perc0.650.630.73
wins8742184073401528
losses197944393581209689
win_perc0.3060.2950.249
trade_bars9699317761866243890
avg_trade_bars3.42.853.88
avg_win_bars4.113.026.02
avg_loss_bars3.082.783.16
cons_wins1113315
cons_losses188034
edge0.840.7750.495

Doji Bearish Backtest Results

cryptoforexstock
pattern_namedojidojidoji
pattern_categoryindecisionindecisionindecision
pattern_bars111
required_trendnonenonenone
traded_asbearishbearishbearish
stop_bar_typehighhighhigh
entry_bar_typelowlowlow
risk_reward555
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516952
pattern_tickers25912856600
patterns202189722361841272
trades92055155231021633
confirm_perc0.460.530.55
wins2253164060209674
losses6952351463811959
win_perc0.2450.3180.205
trade_bars11644317974657339568
avg_trade_bars12.653.497.18
avg_win_bars12.343.8911.41
avg_loss_bars12.753.36.09
cons_wins79521439
cons_losses408858
edge0.4650.910.225
cryptoforexstock
pattern_namedojidojidoji
pattern_categoryindecisionindecisionindecision
pattern_bars111
required_trendnonenonenone
traded_asbearishbearishbearish
stop_bar_typehighhighhigh
entry_bar_typeclosecloseclose
risk_reward555
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516952
pattern_tickers25912856600
patterns2474810380582117397
trades168766752881584517
confirm_perc0.680.650.75
wins4785218816379006
losses120914564721205511
win_perc0.2840.3240.239
trade_bars11564216470046156833
avg_trade_bars6.852.443.89
avg_win_bars5.872.725.47
avg_loss_bars7.242.33.39
cons_wins202651458
cons_losses395161
edge0.70.940.435

Doji Mean Reversion Backtest Results

cryptoforexstock
pattern_namedojidojidoji
pattern_categoryindecisionindecisionindecision
pattern_bars111
required_trendnonenonenone
traded_asbullish mean reversionbullish mean reversionbullish mean reversion
stop_bar_typeatratratr
entry_bar_typeclosecloseclose
risk_reward555
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516952
pattern_tickers25912856600
patterns309787882571516980
trades11342326047688731
confirm_perc0.370.410.45
wins290339326160410
losses8439286721528321
win_perc0.2560.1210.233
trade_bars12176220307478435552
avg_trade_bars10.746.2312.25
avg_win_bars17.6716.4423.09
avg_loss_bars8.354.838.95
cons_wins396
cons_losses2512527
edge0.54-0.2750.395
cryptoforexstock
pattern_namedojidojidoji
pattern_categoryindecisionindecisionindecision
pattern_bars111
required_trendnonenonenone
traded_asbearish mean reversionbearish mean reversionbearish mean reversion
stop_bar_typeatratratr
entry_bar_typepattern_highpattern_highpattern_high
risk_reward554
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516952
pattern_tickers25912856600
patterns197657495671606120
trades7227307676741686
confirm_perc0.370.410.46
wins120540428170145
losses6022267248571541
win_perc0.1670.1310.229
trade_bars11720720581357691882
avg_trade_bars16.226.6910.37
avg_win_bars19.5618.1915.47
avg_loss_bars15.554.958.85
cons_wins30184164
cons_losses397634
edge0.005-0.2150.146

Similar Candlestick Patterns

There are multiple types of doji candlestick patterns. It’s essential to understand the differences when using candlestick pattern technical analysis.

Long Legged Doji vs. Common Doji Candlestick Pattern

The long-legged doji candlestick pattern is almost identical to the common doji candlestick pattern. The only difference is that the long-legged doji pattern requires a trading range greater than prior candles’ average trading range. 

Dragonfly Doji vs. Common Doji Candlestick Pattern

The dragonfly doji candlestick pattern is also similar to the common doji pattern. The only difference is that the opening and closing price ends up near the high of the day.

Another difference between the dragonfly doji and the common doji is that the dragonfly doji is supposed to be a reversal pattern in a downtrend and an indecision pattern in an uptrend.

Gravestone Doji vs. Common Doji Candlestick Pattern

The gravestone doji candlestick pattern, sometimes called the tombstone pattern, is the opposite of a dragonfly doji.

The open and close price of the gravestone doji pattern ends near the trading range’s low. 

Evening Doji Star vs. Common Doji Candlestick Pattern

The evening doji star is a three-candle bearish reversal pattern that contains a doji. This star doji has a long white candle, followed by a gap up doji, followed by a gap down bearish candle. The doji is said to be a star doji as there’s a gap on both sides, and it’s an evening because it portends darkness or bearish price action.

Morning Doji Star vs. Common Doji Candlestick Pattern

The morning star doji, like the evening star, gets its name by containing a doji. The pattern supposedly acts as a bullish reversal where the first candle is a large black candle in the direction of the trend, followed by a gap down doji, and then the next day is a gap up. 

Like the evening star doji, the morning star doji gets its name from the gap down doji.

The Bottom Line

Understanding how to identify a doji candlestick is critical when using candlestick pattern analysis as they occur frequently. Doji patterns are often a component of larger candlestick patterns such as the evening or morning star doji.

And you now also know that this indecision pattern is often a sign of volatility contraction ready to break up or down for your profit.

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