A Doji candle has a small body with a long upper wick and long lower wick. Long means longer than the length of the body of the candle. Below is an example of what a typical Doji candle looks like.
A recent client of Trading Coach Jo, recognized a Doji, but did not understand how to interpret this potential signal. Following is my simplified explanation:
After identifying a Doji, the most significant thing is to note where this Doji occurs on the chart. If a Doji appears at support or resistance, it could mean a reversal. I suggest that you wait for the next candle to confirm a change in direction.
If a Doji appears other than at support or resistance, it simply signifies indecision. You will notice that a stock that is stagnant in a horizontal channel, may have several Dojis with a short time period – all showing that the stock does not know which way it intends to move.
Be sure to watch for Doji candles at support and resistance. Noticing this pattern can give you advance notice of a pending move in the opposite direction.
Here’s to your option trading success,