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4 Types of Doji Candles

Master the art of reading market indecision through Doji candlestick patterns. Learn to identify and trade all four types of Doji candles with precision timing and superior risk management strategies.

Learn to Identify Trading Strategy
68%
Reversal Accuracy
4 Types
Doji Variations
1:2
Min Risk/Reward
Neutral
Indecision Signal

What is a Doji Candle?

A Doji candle is one of the most significant reversal patterns in forex trading. It forms when the opening and closing prices are virtually identical, creating a cross-like appearance that represents perfect market indecision between buyers and sellers.

This candlestick pattern signals that neither bulls nor bears are in control, often occurring at critical support and resistance levels. When a Doji appears after a strong trend, it frequently marks the beginning of a potential reversal or consolidation period.

Key Insight:

Doji candles at key levels combined with volume analysis show reversal potential exceeding 68% when properly confirmed with subsequent price action.

Standard Doji Long-legged Dragonfly Market Indecision Zone

The 4 Types of Doji Candles

1. Standard Doji

The most common Doji formation features equal-length upper and lower shadows with open and close prices nearly identical. This represents perfect equilibrium between buying and selling pressure.

Characteristics:

  • • Equal or similar upper and lower shadows
  • • Opening price = Closing price
  • • Appears after strong trends
  • • Signals potential trend exhaustion

Trading Signal:

Wait for confirmation candle in the opposite direction before entering. Best used at key support/resistance levels.

Standard Doji
Long-legged Doji

2. Long-legged Doji

Also known as "Rickshaw Man," this Doji features very long upper and lower shadows, indicating extreme volatility and indecision during the trading session.

Characteristics:

  • • Very long upper and lower shadows
  • • High volatility during session
  • • Extreme market indecision
  • • Strong reversal potential

Trading Signal:

Most reliable at major support/resistance. The longer the shadows, the stronger the reversal signal when confirmed.

3. Dragonfly Doji

A bullish reversal signal featuring a long lower shadow with no upper shadow. The open, high, and close are all at the same level, showing strong rejection of lower prices.

Characteristics:

  • • Long lower shadow
  • • No upper shadow (or very small)
  • • Open = High = Close
  • • Strong bullish reversal signal

Trading Signal:

Excellent bullish reversal at support levels. Wait for bullish confirmation candle before entering long positions.

Dragonfly Doji
Gravestone Doji

4. Gravestone Doji

A bearish reversal pattern with a long upper shadow and no lower shadow. The open, low, and close are identical, indicating strong rejection of higher prices.

Characteristics:

  • • Long upper shadow
  • • No lower shadow (or very small)
  • • Open = Low = Close
  • • Strong bearish reversal signal

Trading Signal:

Powerful bearish reversal at resistance levels. Confirms selling pressure when buyers fail to hold gains.

Complete Doji Trading Strategy

Entry Strategy

Confirmation Entry

Wait for the candle following the Doji to confirm direction. Enter when this candle closes in the anticipated reversal direction.

Break Entry

For aggressive traders, enter when price breaks above/below the Doji's high/low with strong momentum and volume confirmation.

Multiple Doji Entry

When multiple Dojis appear in succession, wait for the final Doji to be broken before entering in the breakout direction.

Pro Tip:

Combine Doji signals with RSI divergence or oversold/overbought conditions for higher probability trades.

Risk Management

Stop Loss Placement

For bullish reversal: Place stop below the Doji's low. For bearish reversal: Place stop above the Doji's high.

Alternative Stop Method

Use the shadow extremes plus 5-10 pips buffer to account for market noise and avoid premature stop-outs.

Position Sizing

Risk no more than 1-2% per trade. Calculate position size based on the distance to your stop loss level.

Warning:

Doji candles in ranging markets are less reliable. Always consider the broader market context before trading.

Profit Target Strategies

Method 1
Shadow Length

Project the length of the Doji's longest shadow in the direction of the reversal to set initial profit target.

Method 2
Key Levels

Target the next significant support/resistance level or previous swing high/low in the reversal direction.

Method 3
Risk Multiple

Use a fixed risk-reward ratio of 1:2 or 1:3, measuring from entry to stop loss distance for profit target.

Market Context & Environment

Trending Markets

Dojis are most effective as reversal signals at the end of strong trends. In trending markets, they signal potential exhaustion and trend change, especially at key levels.

Ranging Markets

In sideways markets, Dojis are less reliable as standalone signals. They may simply indicate continued consolidation rather than meaningful reversal patterns.

Volume Confirmation

High volume Doji formations are more significant than low volume ones. Volume surge on confirmation candle strengthens the reversal signal considerably.

Multiple Timeframes

Doji patterns on higher timeframes (Daily, 4H) carry more weight than those on lower timeframes. Always check multiple timeframes for confluence.

Common Mistakes to Avoid

❌ What NOT to Do

  • • Trading Dojis without confirmation
  • • Ignoring overall market trend
  • • Using Dojis in ranging markets
  • • Placing stops too close to entry
  • • Trading every Doji formation
  • • Overlooking volume analysis
  • • Missing key support/resistance context

✅ Best Practices

  • • Wait for confirmation candle
  • • Focus on Dojis at key levels
  • • Use multiple timeframe analysis
  • • Combine with volume indicators
  • • Consider market fundamentals
  • • Practice pattern recognition
  • • Maintain proper risk management

Market Examples & Case Studies

USD/JPY Dragonfly Doji

On the USD/JPY 4-hour chart, a strong downtrend led into a major support level. A Dragonfly Doji formed at this level with a long lower wick, indicating sellers were running out of momentum. A subsequent large bullish candle confirmed the reversal, and price rallied for the next two days, reaching a 1:3 risk/reward target.

EUR/GBP Gravestone Doji

Following a strong uptrend on the EUR/GBP daily chart, a Gravestone Doji appeared at a key resistance level. The long upper wick showed that buyers tried to push the price higher but failed, with sellers completely rejecting the new highs. The next day, a large bearish candle closed below the Doji's low, confirming the reversal. The pair then entered a significant downtrend.