Does a confused market confuse you as a trader? It does not have to. Learn how to use the Doji signal and make profits trading stocks, commodities, and Forex when the market is all a dither. So, all of those traders all over the market cannot figure out where a stock is going next. Then, how is it that one trader making use of a single Japanese candlestick, the one candlestick Doji signal, can expect to make a profit? Well, folks, it’s like this. Technical analysis works on the principle that market patterns repeat themselves. When a trader spots a technical signal, like the Doji candlestick, in the right situation he can reliably expect the equity in question to move as expected. Here is a little insight into using the Doji to make sense of a confused market. But first just what is a Doji signal?
A Japanese Candlestick signal is comprised of one or more candlesticks. In the case of the Doji there is only one candlestick and it is virtually flat. The Doji candlestick indicates a trading day in which an equity opened and closed at essentially the same price. It will have traded higher and lower throughout the day but come home to roost pretty much where it started from. Thus the Doji is a very squat candle or just a flat line with shadows above and below. What does this mean?
An Indication of Market Indecision
The Doji signal simply tells us that the market is undecided. However, traders are still trading and they are taking the equity up and down during the trading day only to end the day very close to the opening price. What the Doji tells us as to market direction has to do with where the market is coming from. An upward trending market, a downward trending market and a flat market all give different meanings to the Doji signal.
Overbought versus Oversold versus a Flat Line Market
The Doji signal tells us that the market is undecided. When this signal occurs after a run up of an equity it tells us that many traders believe that the stock is overbought. In this case the Doji is a strong predictor of a downward reversal of the equity. When the Doji signal occurs after a downward run of the market it indicates that the equity may be oversold. In this case the Doji tells us to be alert for an upward reversal of the price of the equity. And, in the case of an equity price that is just wandering along, neither up or down, the Doji signal confirms our impression that there may be indecision regarding this equity. However, in such a situation the signal does not give any indication of whether the price is going up or down. The value of this signal lies in seeing that a formerly clear market consensus has become confused. This signal is equally effective when used for time frames shorter than one day. It can be used and has predictive value for time frames as short as a few minutes.