What is a Doji in Forex Trading?
Quick Answer: A doji is a candlestick where open and close prices are virtually identical, creating a small or nonexistent body with wicks above/below. It signals market indecision - neither buyers nor sellers gained control. Dojis at trend extremes can signal potential reversals.
What is a Doji in Forex Trading?
A doji is a candlestick pattern where the open and close prices are virtually identical, creating a very small or nonexistent body with wicks extending above and below. It signals indecision in the market - neither buyers nor sellers gained control during that period. The visual appearance is a cross, plus sign, or inverted cross, depending on where the open/close occurred relative to the high and low.
Types of Doji Patterns
Different doji variations convey distinct market messages:
- Standard Doji: Equal-length wicks, open/close at midpoint - pure indecision
- Long-Legged Doji: Very long wicks, small body - extreme battle, no winner
- Dragonfly Doji: Long lower wick, no upper wick - sellers rejected, bullish hint
- Gravestone Doji: Long upper wick, no lower wick - buyers rejected, bearish hint
Practical Example
EUR/USD is in a strong uptrend, making higher highs for two weeks. A 4-hour candle forms at 1.1100 resistance: opens at 1.1095, spikes to 1.1130 (rejected), drops to 1.1070 (rejected), closes at 1.1098. This gravestone doji shows buyers tried to push higher (long upper wick), failed, and sellers pushed down, but buyers defended. Result: uncertainty. The trend may be exhausting. Two candles later, price breaks below 1.1050, confirming the doji was a reversal signal. Traders who recognized the indecision could have exited longs or prepared shorts.
How to Trade Doji Patterns
Context is everything with dojis:
- After strong trends: Doji suggests potential reversal (exhaustion)
- At support/resistance: Doji confirms level significance
- In ranging markets: Doji is just noise, ignore it
- Volume confirmation: Doji with high volume is more significant
- Wait for confirmation: Don't trade the doji itself, wait for next candle direction
The Doji Reality Check
Dojis are not magic reversal signals. They indicate hesitation, not direction. A doji after a 200-pip uptrend at a major resistance level deserves attention. A doji in the middle of a ranging market on a Tuesday afternoon is meaningless. Professional traders use dojis as one piece of evidence, combined with trend structure, support/resistance, and broader price action. Never trade a pattern in isolation.
Learn More About Forex Trading
Now that you understand doji, explore our comprehensive guides: