Other dojis

The long legged doji, bullish dragonfly doji, and gravestone dojis are powerful but rare. You're more likely to see a doji with an open and close that appear somewhere other than the center or one of the ends of a wick. These dojis are still useful as reversal indicators, and because they appear more often than the named dojis, they offer more trading opportunities. Figure 6-9 highlights a variety of dojis.

When evaluating a doji, I look for the candle to appear on the top half of the wick if I'm using the doji as a buy signal or on the bottom half of the wick if I'm using it as a sell signal. With the open and close near the high, I feel that the bulls are winning the day, and if the open and close are near the low, I feel that the bears are coming out on top.

Figure 6-9:

A variety of dojis.

Figure 6-9 looks like a chart that my three-year-old created while she was learning how to write the letter t. Basically dojis just look like t's or upside down t's.

Using regular dojis to trade long

Figure 6-10 is a chart of the stock Capital One Financial Corp. (COF). Notice the long doji on the left. After that doji, the stock takes off on a very nice uptrend. The doji is a great example because the candle that marks the open and close is clearly in the top half of the price action for the day. I really have more comfort buying a doji signal when the price closes near the high; I just feel that more bulls are on my side.

Figure 6-10:

A regular long doji appearing on a chart of COF.

Figure 6-10:

A regular long doji appearing on a chart of COF.

For an example of a failing doji signal, see Figure 6-11. It's a chart of the futures contracts that trade on the Japanese Yen. In the center of the chart is a doji appearing during a definite downtrend. The signal is negated the following day with a violation of the low of the day in which the doji appeared. Once again, if you traded this signal and you didn't call it quits after the violation and signal failure, you'd be in for a painful ride down.

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