Doji

Long time ago I went for a job interview and the interviewer asked me if I was “passionate” (that is the word he used) about certain task I would be performing if I got the job. Well, most of you do not know me in person, but I am quite transparent so it is easy for others to see what I really think by just looking at my face. Anyway, I was not truly passionate about that task so I started laughing. Of course I did not get the job.

Anyway, the story above is simply to say that “I am” passionate about Japanese candlesticks. (Although I tend to reserve the word passion for other aspects of my life.)
So in 2009 I want to dive deeper into candlestick formations and how to effectively use them in my trading.

For the first two weeks of the year I focused on the Doji, and more specifically on the Long-Legged Doji. And to be even more focused, I excluded the Gravestone Doji (no lower leg) and the Dragonfly Doji (no upper leg), and also the Doji with very, very small legs.

My approach is very practical and my observations are based on real-life charts, so that is what I will share here the blog. I hope it does not contradict textbook definitions, but if it does, so be it. By the way, the best book I read on the subject (and continue re-reading) is the Japanese Candlestick Charting Techniques by Steve Nison. It is quite excellent!

I observed that Long-Legged Doji represent:
1. Reversal (the most common and accepted view)
2. Continuation (not many books see it that way)
3. Pause
4. Prelude of acceleration

Reversal
I think that for intraday trading, one of the safest plays is when a trend is established and price prints a Doji while it pulls back to test a significant PP




Continuation
The primary requirement for playing Doji as continuation, is that the movement prior to the Doji needs to shows significant strength. So if there is hesitation, there is more risk of failure.




I think one of the keys to success in trading is to know your setups and patterns inside out. If you cannot find and recognize patterns outside trading hours, you are less likely to find them in the heat of the moment.
I am planning to continue this type of posts.