Doji candles and what they signal.

Some candles open and close at almost the same price. The body shrinks to a thin line, and only the wicks show how far price travelled. This candle is called a doji.

A doji tells you that, by the close, neither buyers nor sellers had gained ground. What that means for the next move depends on where the doji appears.

What does a doji look like?

Picture a one-hour candle on USD/JPY, with round illustrative prices. It opens at 150.20, climbs to 150.60, drops to 149.90 and closes at 150.22. Price travelled 70 pips but finished only 2 pips from its start.

A doji is a candle whose open and close are equal or very nearly equal, so the body is a thin horizontal line. The wicks can be any length. The lesson on how to read a candlestick covers each part.

Most brokers quote USD/JPY to three decimals, so an exact match between open and close is rare. Traders call a candle a doji when its body is tiny compared with its full range.

How small does the body have to be?

No official rule exists. A common working threshold is a body no larger than about 5 to 10% of the range. Pick one number and apply it the same way every time.

Here is the test for the USD/JPY candle:

1. Range is high minus low: 150.60 minus 149.90 = 0.70. On a yen pair a pip is 0.01, so that is 70 pips.
2. Body is close minus open: 150.22 minus 150.20 = 0.02, which is 2 pips.
3. Body as a share of range: 2 ÷ 70 = 0.029, about 2.9%.
4. 2.9% is under a 10% threshold, and under 5% too, so this candle counts as a doji.

Now take a candle with the same 70 pip range and a 15 pip body. 15 ÷ 70 = 21%, too large for a doji under this rule. That candle is a spinning top, a small but clear body with wicks on both sides.

The line between the two is a matter of definition. Two traders with different thresholds can label the same candle differently, and neither has made a mistake.

What are the four common types of doji?

The wicks decide the type. Each one records where price went during the period before it came back to the open.

• A standard doji has short wicks on both sides. Price barely moved in either direction.
• A long-legged doji has long wicks on both sides, like the USD/JPY example. Price swung widely and still ended where it began.
• A dragonfly doji has its open, close and high at about the same price, with a long lower wick. Sellers pushed price down and buyers pushed it all the way back.
• A gravestone doji has its open, close and low at about the same price, with a long upper wick. Buyers pushed price up and sellers pushed it all the way back.

A rarer form, the four-price doji, has open, high, low and close all equal, so it is a single flat dash. On a busy forex pair it mostly shows up on very short timeframes when almost nothing trades.

The dragonfly looks like a hammer, and the gravestone looks like a shooting star. Those patterns have a small but visible body, and the next two lessons cover them.

What does a doji signal?

On its own, a doji records one period of balance. Its meaning comes from where it appears.

After a long run of rising candles, a doji says buying pressure faded for one period. Near a resistance level, some traders read that as a possible pause or turn.

In a sideways market, dojis are common and usually tell you little. Price is already balanced there, so one more balanced candle adds no new information.

A dragonfly after a fall and a gravestone after a rise are the versions most often read as reversal hints. Their long wick shows that one side pushed hard and was driven back by the close.

None of these readings is reliable alone. Dojis often appear mid-trend, and the trend carries on. Published tests of candlestick patterns disagree, and the evidence that one doji predicts direction is weak.

How might a trader wait for confirmation?

A common approach treats the doji as a warning and lets the next candle decide. The example below uses round illustrative prices to show the arithmetic of that method, and it is not a recommendation to trade.

1. EUR/USD rises over four hourly candles, from an open of 1.08450 to a close of 1.09000.
2. The fifth candle is a gravestone doji: open, close and low at 1.09000, high at 1.09200.
3. The sixth candle closes at 1.08900, below the doji's low. A trader using this rule could sell at 1.08900.
4. The stop goes at the doji's high, 1.09200. The distance is 1.09200 minus 1.08900 = 0.00300, which is 30 pips.
5. On 0.10 lot of EUR/USD one pip is worth $1, so the trade risks 30 × $1 = $30, before the spread.

Waiting for confirmation moves the entry. By the time the sixth candle closes, price is 10 pips below the doji's close, so the stop sits 30 pips away instead of 20.

If the sixth candle had closed back above the doji's low instead, the rule would have said to stay out. The lesson on stop loss methods shows other ways to place that stop.

Where do doji readings go wrong?

Timeframe changes the weight of a doji. A 5-minute chart prints many of them, each reflecting only five minutes of trading. A doji on a daily chart sums up a full day.

Quiet hours produce dojis with no real contest behind them. In the gap after New York closes and before Tokyo is fully active, price often drifts in a narrow range. The trading sessions lesson explains when activity rises and falls.

Your broker's chart matters too. Forex trades over the counter, so each broker builds candles from its own price feed and its own daily closing time. A doji on one platform can be a small spinning top on another.

Scheduled news can override a doji. A long-legged doji just before a major release often shows traders waiting, and the release then sets the direction.

A doji gets more weight when it sits at a level you already watch and the next candle closes beyond its high or low in the hinted direction. That combination can still fail, which is why the stop matters.