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
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
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.
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.
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
| crypto | forex | stock | |
|---|---|---|---|
| pattern_name | doji | doji | doji |
| pattern_category | indecision | indecision | indecision |
| pattern_bars | 1 | 1 | 1 |
| required_trend | none | none | none |
| traded_as | bullish | bullish | bullish |
| stop_bar_type | low | low | low |
| entry_bar_type | high | high | high |
| risk_reward | 5 | 5 | 5 |
| timeframe | 2015-2021 | 2010-2021 | 2000-2021 |
| bar_period | daily | daily | daily |
| total_tickers | 395 | 1351 | 6952 |
| pattern_tickers | 259 | 1285 | 6600 |
| patterns | 45111 | 951300 | 1980811 |
| trades | 19677 | 499893 | 1084037 |
| confirm_perc | 0.44 | 0.53 | 0.55 |
| wins | 5885 | 143152 | 251206 |
| losses | 13792 | 356741 | 832831 |
| win_perc | 0.299 | 0.286 | 0.232 |
| trade_bars | 98922 | 1862862 | 7400300 |
| avg_trade_bars | 5.03 | 3.73 | 6.83 |
| avg_win_bars | 6.09 | 4.16 | 11.84 |
| avg_loss_bars | 4.57 | 3.55 | 5.31 |
| cons_wins | 12 | 133 | 8 |
| cons_losses | 39 | 235 | 41 |
| edge | 0.795 | 0.72 | 0.39 |
| crypto | forex | stock | |
|---|---|---|---|
| pattern_name | doji | doji | doji |
| pattern_category | indecision | indecision | indecision |
| pattern_bars | 1 | 1 | 1 |
| required_trend | none | none | none |
| traded_as | bullish | bullish | bullish |
| stop_bar_type | low | low | low |
| entry_bar_type | close | close | close |
| risk_reward | 5 | 5 | 5 |
| timeframe | 2015-2021 | 2010-2021 | 2000-2021 |
| bar_period | daily | daily | daily |
| total_tickers | 395 | 1351 | 6952 |
| pattern_tickers | 259 | 1285 | 6600 |
| patterns | 43969 | 983503 | 2200700 |
| trades | 28536 | 623431 | 1611217 |
| confirm_perc | 0.65 | 0.63 | 0.73 |
| wins | 8742 | 184073 | 401528 |
| losses | 19794 | 439358 | 1209689 |
| win_perc | 0.306 | 0.295 | 0.249 |
| trade_bars | 96993 | 1776186 | 6243890 |
| avg_trade_bars | 3.4 | 2.85 | 3.88 |
| avg_win_bars | 4.11 | 3.02 | 6.02 |
| avg_loss_bars | 3.08 | 2.78 | 3.16 |
| cons_wins | 11 | 133 | 15 |
| cons_losses | 18 | 80 | 34 |
| edge | 0.84 | 0.775 | 0.495 |
Doji Bearish Backtest Results
| crypto | forex | stock | |
|---|---|---|---|
| pattern_name | doji | doji | doji |
| pattern_category | indecision | indecision | indecision |
| pattern_bars | 1 | 1 | 1 |
| required_trend | none | none | none |
| traded_as | bearish | bearish | bearish |
| stop_bar_type | high | high | high |
| entry_bar_type | low | low | low |
| risk_reward | 5 | 5 | 5 |
| timeframe | 2015-2021 | 2010-2021 | 2000-2021 |
| bar_period | daily | daily | daily |
| total_tickers | 395 | 1351 | 6952 |
| pattern_tickers | 259 | 1285 | 6600 |
| patterns | 20218 | 972236 | 1841272 |
| trades | 9205 | 515523 | 1021633 |
| confirm_perc | 0.46 | 0.53 | 0.55 |
| wins | 2253 | 164060 | 209674 |
| losses | 6952 | 351463 | 811959 |
| win_perc | 0.245 | 0.318 | 0.205 |
| trade_bars | 116443 | 1797465 | 7339568 |
| avg_trade_bars | 12.65 | 3.49 | 7.18 |
| avg_win_bars | 12.34 | 3.89 | 11.41 |
| avg_loss_bars | 12.75 | 3.3 | 6.09 |
| cons_wins | 79 | 521 | 439 |
| cons_losses | 40 | 88 | 58 |
| edge | 0.465 | 0.91 | 0.225 |
| crypto | forex | stock | |
|---|---|---|---|
| pattern_name | doji | doji | doji |
| pattern_category | indecision | indecision | indecision |
| pattern_bars | 1 | 1 | 1 |
| required_trend | none | none | none |
| traded_as | bearish | bearish | bearish |
| stop_bar_type | high | high | high |
| entry_bar_type | close | close | close |
| risk_reward | 5 | 5 | 5 |
| timeframe | 2015-2021 | 2010-2021 | 2000-2021 |
| bar_period | daily | daily | daily |
| total_tickers | 395 | 1351 | 6952 |
| pattern_tickers | 259 | 1285 | 6600 |
| patterns | 24748 | 1038058 | 2117397 |
| trades | 16876 | 675288 | 1584517 |
| confirm_perc | 0.68 | 0.65 | 0.75 |
| wins | 4785 | 218816 | 379006 |
| losses | 12091 | 456472 | 1205511 |
| win_perc | 0.284 | 0.324 | 0.239 |
| trade_bars | 115642 | 1647004 | 6156833 |
| avg_trade_bars | 6.85 | 2.44 | 3.89 |
| avg_win_bars | 5.87 | 2.72 | 5.47 |
| avg_loss_bars | 7.24 | 2.3 | 3.39 |
| cons_wins | 202 | 651 | 458 |
| cons_losses | 39 | 51 | 61 |
| edge | 0.7 | 0.94 | 0.435 |
Doji Mean Reversion Backtest Results
| crypto | forex | stock | |
|---|---|---|---|
| pattern_name | doji | doji | doji |
| pattern_category | indecision | indecision | indecision |
| pattern_bars | 1 | 1 | 1 |
| required_trend | none | none | none |
| traded_as | bullish mean reversion | bullish mean reversion | bullish mean reversion |
| stop_bar_type | atr | atr | atr |
| entry_bar_type | close | close | close |
| risk_reward | 5 | 5 | 5 |
| timeframe | 2015-2021 | 2010-2021 | 2000-2021 |
| bar_period | daily | daily | daily |
| total_tickers | 395 | 1351 | 6952 |
| pattern_tickers | 259 | 1285 | 6600 |
| patterns | 30978 | 788257 | 1516980 |
| trades | 11342 | 326047 | 688731 |
| confirm_perc | 0.37 | 0.41 | 0.45 |
| wins | 2903 | 39326 | 160410 |
| losses | 8439 | 286721 | 528321 |
| win_perc | 0.256 | 0.121 | 0.233 |
| trade_bars | 121762 | 2030747 | 8435552 |
| avg_trade_bars | 10.74 | 6.23 | 12.25 |
| avg_win_bars | 17.67 | 16.44 | 23.09 |
| avg_loss_bars | 8.35 | 4.83 | 8.95 |
| cons_wins | 3 | 9 | 6 |
| cons_losses | 25 | 125 | 27 |
| edge | 0.54 | -0.275 | 0.395 |
| crypto | forex | stock | |
|---|---|---|---|
| pattern_name | doji | doji | doji |
| pattern_category | indecision | indecision | indecision |
| pattern_bars | 1 | 1 | 1 |
| required_trend | none | none | none |
| traded_as | bearish mean reversion | bearish mean reversion | bearish mean reversion |
| stop_bar_type | atr | atr | atr |
| entry_bar_type | pattern_high | pattern_high | pattern_high |
| risk_reward | 5 | 5 | 4 |
| timeframe | 2015-2021 | 2010-2021 | 2000-2021 |
| bar_period | daily | daily | daily |
| total_tickers | 395 | 1351 | 6952 |
| pattern_tickers | 259 | 1285 | 6600 |
| patterns | 19765 | 749567 | 1606120 |
| trades | 7227 | 307676 | 741686 |
| confirm_perc | 0.37 | 0.41 | 0.46 |
| wins | 1205 | 40428 | 170145 |
| losses | 6022 | 267248 | 571541 |
| win_perc | 0.167 | 0.131 | 0.229 |
| trade_bars | 117207 | 2058135 | 7691882 |
| avg_trade_bars | 16.22 | 6.69 | 10.37 |
| avg_win_bars | 19.56 | 18.19 | 15.47 |
| avg_loss_bars | 15.55 | 4.95 | 8.85 |
| cons_wins | 30 | 184 | 164 |
| cons_losses | 39 | 76 | 34 |
| edge | 0.005 | -0.215 | 0.146 |
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.
