AGAIG: WHICH WAY DOJI? IS IT ANOTHER INDICATOR ON TOS?
Even though a DOJI is a type of Candle you should think of it as another POTENTIAL INDICATOR in your arsenal.
Even though a DOJI is a type of Candle you should think of it as another POTENTIAL INDICATOR in your arsenal.
A DOJI CANDLE shows possibility of an impending trend reversal. I only like to look at Doji’s using Heikin Ashi Candles (of course I only like Heikin Ashi Candles for trading purposes in general as they are smoother).
The Doji has a small body which looks like a cross or a + (plus) sign on the chart. The body price could be a straight line when opening and closing prices are the same, or a box as shown below if opening/closing prices are nearly the same.
The small central body represents a tug of war between buyers and sellers. The shadows (wicks) represent buyers trying to push price up and sellers trying to push price down. The middle box on a Doji shows that opening price (on this candle) was almost the same as the closing price and the wicks didn’t have much affect on price.
The Doji represents a “heads up” showing a moment of indecision concerning price. A Doji should not be used as a trade entry until the next candle closes above or below the Doji showing an actual change-in-direction. That candle is the trading point. It may be the first or second Candle after the Doji forms. Therefore a Doji can act as another indicator in your trading arsenal.
Now to repeat myself: the Doji basically represents a moment of indecision as to where price of the stock (ETF) might change direction. This is true for all time frames. It is the next candle (or two) after the Doji which provides the clue but only if the next candle closes above, or below the Doji showing a probable direction entry point. It’s that next candle (or two) clearly above/below the Doji which represents the probable change in direction and a trader could use the actual Doji level as a stop.
A trade close then would be at the next Doji plus Candle that shows another impending change in direction (or use another exit point that you trust).
A Doji can show on all time frames. One issue with many traders (including myself) is “exit-itis” (not letting a trade play out and leaving profits on the table). The same time frame should be used for entries and exits.
The expirations I use when trading the Doji is based on the time frame I am using. For Day Trading (short time frames) I will be in and out during the day and will be using the next expiration. For longer time frames I might use 1-3 weeks out (or longer) expirations and will close an entered when the next Doji + first Candle Change appears.
So, How to trade the Doji:
Once you see a DOJI trade the next candle closing above/below the Doji (it might not be the first candle could be the second or third that actually closes above/below the Doji. The Doji itself only suggests a change in direction (Indicator). The next Candle(s) fully above or below the Doji lets us know the probable direction of the breakout. Again, the trading candle must close fully above/below the Doji to confirm direction.
Once a trade is placed usually ATM, slightly ITM, or a bar or two OTM (Out of the money) usually produces the best trades. The ATR (Average Trade Range) lets us know the Day, Week and Month range to expect for volatility. I like to trade stocks that move 5+ points per day.
One can place a stop at the level of the Doji to protect the risk of the trade. The exit for the trade would be the next Doji (that is the first candle of the next Doji depending if that candle shows a reversal or a continuing trade? If a continuing trade more profits are in store and the trader can stay in the trade?
You should be able to use any of my AGAIG charting for Doji trades (whichever chart fits your eye the best) and using Heikin Ashi Candles for the style setting. Frequently my Long/Short Bubbles are on top of, or close to, a Doji.
Here is a Bearish example of Doji Candle with second candle below the Doji showing a downward trend. The second candle is the trade entry point. The first candle is not clearing the Doji (only the shadow).
This is a 4 Hour Chart of SNOW.
You can see the Doji on the Lower Left and the Doji price was 138.82 The second Candle is the actual Doji entry point with entry when it rose above the Doji at around 143. Over the next few day SNOW price rose 168 (25 points which was then worth approximately $1,250 after a 7-8 day period). You will notice a small Doji about four days into the trade which was a continuing trade for more profit. Three or four trades like this with multiple contracts (I usually do 6 contracts at a time where this would have represented a profit of approximately $7,500). On the chart I’m showing you I removed my Bubbles since it was on top of the Doji with my Bubble also showing an entry point.
Hopefully this might give you another potential trading thought?
My preference using Doji’s for Swing Trading is place a trade near the beginning or near the end of a trading day.
Give the Doji a try as one of your entry indicators.
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