What Should You Do When You See a Doji?
As I said, Doji means indecision and uncertainty.
When it forms at the top of an uptrend or at the bottom of a downtrend, it means the price is uncertain to go up or down or sideways.
When you see a Doji, if you already have a position, you have to take your profit and if you don’t have any positions, you have to wait for the confirmation candlestick to choose a direction and enter a trade.
What do I mean by “confirmation candlestick”?
One of the very next a few or few candlesticks, can work as a confirmation.
For example, when you see a Gravestone at the top of an uptrend, you should get ready to go short, but first you have to wait for the next candlestick or even next two candlesticks sometimes.
If they are Bearish, it means bears (sellers) have taken the control and the price will go down.
You can go short after the confirmation candlestick close.
Please note that Doji candlesticks that have longer shadows, are stronger.
As you see, the Doji is confirmed by the next candlestick and the price went down:
Hammer and Hanging Man:
Hammer is a kind of candlestick that can be seen at the bottom of a downtrend.
It has no or a very small upper shadow.
A Hammer that forms at the top of an uptrend is called Hanging Man.
Hammer and Hanging Man have three identifying features:
1. The body is in the upper third of the price range.
2. The lower shadow is twice of the length of the body at least.
3. They have no or a very short upper shadow.
Like Doji, Hammer and Hanging Man indicate indecision and uncertainty and need confirmation.
Shooting Star:
Indeed, Shooting Star is an inverted hammer formed at the top of an uptrend.
Its color can be Bullish or Bearish.
A Shooting Star at the bottom of a downtrend is called Inverted Hammer.
Like Doji and Hammer, Shooting Star and inverted Hammer have to be confirmed by the next candlestick(s).
A gap between the Shooting star .
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