The Bullish Dragonfly Doji

The doji is a type of candlestick pattern with variations and is created when the open and close are equal, so there's essentially no stick on the candlestick. Dojis are almost all wick. Take a look at Figure 5-8, which includes a few different types of dojis. As you can see, a doji looks more like a cross or a t than a pattern on a candlestick chart.

Figure 5-8:

A variety of dojis.

jS^-^O/jf, Loosely translated, doji means blunder or mistake. It's said that the pattern K got its name because a whole day's worth of trading just to end up back at the starting point seems like a goof, but price action isn't ever a mistake, so I'm not crazy about that explanation.

Although there are several varieties of dojis, you can count on them all to be fairly frustrating for traders. For a doji to be created, a day must begin and end with the same price, so a whole lot of trading takes place, but when it's all said and done, the price is right back where it started. Dojis are differentiated by the location of the open and close on the wick — where trading begins and ends on a given day.

WEfl At first glance, dojis may not seem very exciting, but don't be fooled. Doji patterns are usually associated with a market turn, even though they depict a day where the battle between bulls and bears is fairly equal. Even though the battle for the day is a draw, one side soon overpowers the other. It's like a prolonged tug of war that ends when one team is violently yanked into the mud. For the tug of war that's a doji pattern, that yank in price action usually occurs sometime in the next few days or even on the following day.

Although dojis do indicate some indecision, in some instances, a doji may be more bullish or bearish depending on the price action. A dragonfly doji is one of those cases. It is fairly bullish in nature due to the price action that is behind this pattern.

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