Knowing the candlestick Pattern (Doji and its types)

Hello, my dear Steemit friends, it is with great honour that I welcome you to this August occasion here on my blog today. I'm certain that you have been impacted with new knowledge in the past few days if you have been following my blog closely. I'm still in the business of sharing with you an in-depth understanding of the candlestick pattern which will make you become a profitable trader.

In my previous post here in this community, we discussed the engulfing bar, which is one of the powerful candlestick patterns that communicate to traders about a trend continuation or trend reversal which CHoCH depends on where this engulfing bar is found and the type.

We also discuss and established that engulfing bar is made up of two candles I.e a bullish and a bearish in the case of bearish engulfing and the reverse in the case of bullish engulfing is also true. If you want to know more about this, I recommend you read through my previous post by clicking on it here.

Today, we are going to go into another important candle stick chart pattern and the psychology behind its formation. I said earlier that the candle stick is the language of the financial market and if you don't understand this language, then trading in the financial market becomes a big problem for you. Though I will try to simplify it to your understanding.

Doji Candlestick Pattern

This is a type of candlestick pattern that is made up of a single candle which can be red or green I.e. a bullish or bearish candle. It is characterized by a long wick and a little body which is as tiny as the wick itself.

It is always seen as a form of a cross in the chart. The open of the candle and the close is seen at the same point and which means that buyers and sellers are equal at that point not minding the colour of the candlestick formed. The image above shows us a clear example of the Doji candlestick pattern.

The psychology behind the formation

I explained previously that when we talk about the psychology behind the formation of a candlestick pattern, we are referring to the reason behind the formation of that candle pattern. In the case of the Doji, it is due to the indecision between buyers and sellers in the market that forms it.

If a trade is in an uptrend and the doji is formed, there are high probabilities of seeing CHoCH I.e trend reversal. In the same way, if the trade is in a downtrend and the doji is formed, there are high probabilities of the trend reversing in the opposite direction. So in summary the doji candle shows equality and indecision in the market as the open and the close price are seen at the same position.

Here the buyers are unable to push the price high and sellers always push the price back to the opening price i.e. making the open and the close price to be of the same level. It is always seen after a long movement which tells a trader that there may be a change in character soon in the market.

Dragonfly Doji Pattern

This is a type of Doji candle which is seen as the bullish form of the Doji candle. The candle is formed when the open high and the close are the same or about the same point.

From the above chart, you will see the dragonfly doji which is characterized by a long lower wick. This indicates that buyers show much resistance and attempt to carry the market upward again.

The psychology behind the formation

When we see this type of candle pattern on a chart, we know that there is strong resistance and buying pressure in that zone which is majorly at the demand or support level.

The long wick formed by the candle indicates a strong rejection of the selling pressure as the buyers push the market upward and because of the struggle in that region, you will notice the opening and closing at the same point or about the same position.

The Gravestone Doji Pattern

The gravestone doji is a bearish form of the dragonfly doji I.e it is just the opposite of the dragonfly doji. The formation is characterized by a long upper wick whereas the open and the closed low is at the same point or almost the same point.

Looking at the chart above, you will notice that the gravestone doji has a long upper wick and the close and the open are the same or almost the same in the lower part of the candles.

The psychology behind the formation

When we see this type of candle pattern on a chart, we know that there is strong resistance and selling pressure in that zone which is majorly at the supply or resistance level.

The long wick formed by the candle indicates a strong rejection of the buying pressure as the sellers push the market downward and because of the struggle in that region, you will notice the opening and closing at the same point or about the same position.

Conclusion

The Doji candle, the dragonfly doji and the gravestone doji all are important candle patterns that must be taken into consideration at all times. When you see these candle patterns, you will know that there is equality or indecision in the market which means that there are high probabilities of trend reversal in the market.

The formation of the dragonfly doji or the gravestone doji signifies a strong rejection by the buyers or sellers in the market and these candle patterns are seen always in major support or demand zone as well as major supply or resistance zones.

As we progress, I'm going to share with us tips to identify these zones and why they are called demand and supply zones. In brief, these zones are where the big boys carry out their trades. We will go deeper with time.

Disclaimer: ^{This post is made as an education and not investment advice. Digital asset prices are subject to change. All forms of crypto investment have a high risk. I am not a financial advisor, before jumping to any conclusions in this matter please do your research and consult a financial advisor.}

NB: All images are mine and taken from tradingview.com website