Similarly, when it form during a bearish trend, it usually leads to a bullish reversal. Second, there is the dragonfly doji, which has a flat top and a long lower shadow. The opposite of the dragonfly doji is the gravestone doji, which has a long upper shadow and a flat bottom. It happens when the price of an asset opens at a higher price and then closes sharply lower.
In general, the curves of Japanese candlesticks represent a comfortable way for daily market analysis by traders. It has greater predictive power than the high wave candle, although it is similar in its formation and effects. A long-legged doji candlestick is an indecision candlestick that signals a period of uncertainty in the market. The candlestick’s closing much lower than the long-legged doji candlestick signals bears are in control and likely to push prices lower.
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The long-legged doji occurs whenever there is a balance between buyers and sellers in the market. We see a single candle whose open and close prices are almost identical, having two long wicks. We only need one long shadow for the long-legged doji, and we don’t need to concern ourselves with the trend. It is a bit difficult to trade the long-legged doji because it does not provide a particular signal in the market. Nonetheless, there are several strategies that you can use to trade the pattern.
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- My tests show that the long legged doji acts as a bullish continuation candlestick 51% of the time, which I consider random.
- The long-legged doji shows there was a battle between the buyers and sellers but ultimately they ended up about even.
- The examples show that the pattern isn’t always significant on its own.
- The long-legged doji didn’t cause the reversal, but it did foreshadow the consolidation or indecision present in the market before the reversal higher.
To minimize the false signals you may encounter, it is necessary to use several tools simultaneously and collect as much data as possible simultaneously. As a result, long legged doji candlestick proves its effectiveness when used with other tools such as Bollinger bands (volatility indicators). A Doji is a traditional chart pattern that looks like a cross or plus sign and occurs when the open and close prices of a candle are very close or equal. Doji candles are interpreted as a sign of indecision in the market. The candlestick immediately after the long-legged doji candlestick closed higher.
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This is different than the prior periods where the buyers were in control. The overall performance rank is 37, which is closer to 1 (best performance) than 103 (worst). The best average move 10 days after the breakout is a rise of 4.62% in a bear market.
However, given the rejection that comes into play, the price often closes near where it opened, resulting in long wicks on the candlesticks. The second long-legged candlestick does not result in a reversal from the small uptrend. Instead, it results in trend continuation once buyers regain control. Savvy stock traders wait for the price to go below the candle’s low and enter long when the price moves back above the low, setting a stop loss of one ATR. Professional forex traders go short when the price goes below the long-legged doji close, setting a stop loss above the high.
Long Legged Doji Candlestick: Important Results
If trading market consolidation, profit targets are set beneath buys and above sells. In either case, the long-legged price Doji is the reference point for profit target placement. As with any technical tool you are using, stop losses is one way to protect your trading account from unfortunate price breaks. The long-legged doji forms after the consolidation, dropping slightly below the consolidation low but then rallying to close within the consolidation.
If you’re paying attention, you’ll notice that this description also fits some long-legged doji. The long-legged doji is a type of doji candlestick pattern with an extensive range. One of the best things about trading single candlestick patterns is that the process is straightforward. The long-legged Doji candlestick is no different — determine a market entry point and locate stop losses and profit targets. A long-legged doji signals indecision about the future direction of the underlying security’s price. We saw an example of this strategy’s effectiveness on the Euro (EURUSD) daily chart on March 9th, 2011.
The Long-Legged Doji Candlestick Pattern Explained
Risk management should always be a priority to protect your capital. In this article, we have looked at the multiple types of the doji pattern in trading. A due recap, to really understand what differentiates the long-legged from other Doji and why we cannot analyze it in the same way. As you can see, the Bitcoin price formed a long-legged doji whose upper and lower sides were at $45,650 and $43,193, respectively.
Likewise, a consolidation can come into play, after which price might continue moving toward the underlying trend. The long-legged dojis are most important when they occur after strong trends either on the upside or downside. Watch this play out on the Netflix (NFLX) October 28th, 2018, daily chart. HaiKhuu LLC was officially established in January 2018 by the Founder and CEO, Allen Tran.
Additionally, the candlestick pattern can result in trend reversals. The long-legged candlestick pattern indicates that neither buyers or sellers are in control. With no outright winner between the two, price does not change much. The pattern can be found on any timeframe but is more important on longer-term charts, as more participants contribute to its formation. It is part of the larger doji family consisting of the standard doji, dragonfly doji, and tombstone doji.