Traders prefer Japanese candlesticks to understand the pattern of the movement of price of currencies in Forex trading. They then make their trading decisions on the basis of that pattern which is part of technical analysis. Doji is a popular pattern of candlesticks that traders use to analyze the price movement of currencies. It provides more accurate information than the bar charts. Therefore traders prefer candlesticks. It is mostly used to identify a change in trend of price movement of a currency in Forex.
Formation of Doji:
An interesting characteristic about the formation of Doji candlesticks is that it is formed when both the opening price of a currency as well as he closing price of the currency are the same or there is just a slight difference between them. Therefore
A leading Indicator:
Doji is mainly used to indicate:
- A short-term swing in the value of a currency
- A reversal in the trend of a currency
- A prominent highest o lowest price has been achieved or not
- The continuation is going to occur or not.
It reflect the most indecisive state of traders. Both the buyers as well as sellers feel hesitant to make any move. Neither of them takes control of the situation. Obviously you cannot expect any major turn in this state.
It shows that at first the sellers dominated and affected the price to a great extent. Sellers played a vital role in pushing the price towards higher levels but eventually the buyers got control on the market.
It portrays that initially the market was under the control of buyers but eventually near the end of the session, the sellers took control over the price.
Even a Failed Doji has a significant meaning. It is clear signal that the continuation is going to occur.
However you need to keep this in mind that only the Doji is not enough to analyze the complex price movements of currencies. You need to match it with other indicators as well to make a profitable move. Best of luck!