Interpret the Doji on Candlestick Stock Charts

By Stock Research Pro • October 21st, 2009

All stock market investors, whether they subscribe to technical analysis, fundamental analysis, a combination of the two, or any other approach to stock investing should develop a familiarity with stock charts. Candlestick charts, in particular, offer a great deal of information regarding price behavior. A Doji is one particular formation investors can look for within candlestick charts in order to interpret and predict price moves.

About Candlestick Charts

A candlestick is a price chart that displays information for a trading day or some other specified period of time regarding the open, close, high, and low price of a security. A candlestick chart is a popular tool among technical analysts, combing aspects of both bar and line charts in presenting price movements over intervals of time.

The Structure of the Candlestick

The candle is composed of the body (which may be empty or filled in) and an upper and lower “wick”. The body represents the opening and closing trade prices while the wick shows the high and low trade prices for that time interval. If the close price of the security was higher than the open price, the body is not filled in and the opening price will be at the bottom of the body, the high price at the top. If the closing price was lower than the open, the body is filled in with the opening price at the top and the closing price at the bottom.

Recognizing the Doji

A doji, represented by a plus symbol, a cross or an upturned cross, is a pattern that is commonly found in candlestick charts. A doji is illustrated as short in length (representing a small trading range) and opening and equal opening and closing prices. The doji, therefore, represents indecision by investors as they can’t decide whether the price is headed higher or lower.

Interpreting the Doji

Most investors see greater significance in the doji when it forms in securities that, according to indicators like the stochastic oscillator, appear to be overbought or oversold. If the doji forms near levels of support or resistance, it is often seen as a signal of a reversal.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.


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