How can dojis help in making the right trading decision

The candlestick is a chart tool in forex analyses that is popularly used traders in their daily trading. A candle is identified by its appearance as its appears as its namesake. The top wick of the candle represents the highest price while the wick below the body represents the lowest price. These wicks are sometimes referred to as shadows. Meanwhile the body itself represents the open and closing price. Candlesticks come in two colors: green or red (in some cases, it’s black and white) This signifies whether the price went up or down from the day’s opening price.

A doji, now, is a candlestick pattern used as a technical tool for for forex chart analysis. It roots from the Japanese finance as indicated by its name. It occurs when the opening and closing price are at the same level or are very near to each other. It basically indicates a neutral trend or a kind of stalling of the current price trend. Because of this, the candle looks like a cross due to the lack of a body.

There are different kinds of dojis and depending on the kind, different kind of trading strategies applicable. There is the dragonfly, the long-legged, the gravestone, and the standard.

Doji patterns are helpful for traders because it can be used in a variety of ways. It can be used as  an identifier of breakouts. It can help in strategizing entry and exit points. It also aids in implementing short or long positions.

In order to be able to utilize the doji to its maximum potential, traders must remember the following key factors.

1) Incorporate Market Information

The stagnation of the current price trend is not without reason. The very first thing a trader must do is evaluate the market situation in which it appeared in. This way, the trader can identify and confirm the validity of the doji’s appearance. Otherwise, the doji itself will tell you nothing of its next movement.

2) Look at the Preceding Trend

What is the origin of this doji? The preceding trend is a gives traders the clue on what its potential movement is. For example, a preceding trend that shows a generally flat movement followed by a doji usually negates the trading signal the doji represents. It just means that the price trend is generally stagnant.

3) Evaluate the Relative Price Level

Another factor to consider is the relative price level. A doji is an indicator of trend change and is usually key points for support or resistance levels. If this is the case, the trader can adapt accordingly, quickly.

Dojis are significant chart indicators that can give you the opportunity for great profit if used correctly.