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If the size of the real body is zero or very small comparing to the range of the candle then you are dealing with a doji (the plural form of doji is also doji). The following image shows some possible shapes for doji candles.

How to Use Doji

You may use doji candles individually or in combination with other candles. Some combo doji patterns include doji start, harami cross, and tri-star. I will discuss these patterns in future lessons. The focus of this lesson is on single doji presence in a chart.

In general doji could be a sign of reversal. It could also show a pause in the market. I personally do not rely on doji alone to decide about the future direction of the market. You may consider the following to make a decision upon spotting doji on a chart.

• If you see a doji at the top of a rally (Northern doji) or at the bottom of a decline (Southern doji) then there is a chance that the market would reverse or enter a sideways movement for a while. You may therefore consider exiting or partially exiting your current position.
• If other technical tools such as chart patterns or technical indicators confirm the reversal then you may enter a new trade. So enter a new trade only if other tools confirm the reversal. I strongly recommend to back-test this approach to avoid losses due to misinterpretation of such patterns.
• If there are many doji candles near to each other then it could be an indication of market indecision. This simply means that the next move could be in any direction. In such cases you would better disregard doji and look for other technical tools in order to enter or exit trades.

As a general rule of thumb I avoid entering trades by using doji alone. Doji, however, could be a good indication to exit trades.

Locating Doji

In an effort to locate doji candles in a chart I have made the following assumptions:

• The size of the real body is less than 3% of the range and not more than 5 pips
• The range (i.e. the distance between high and low) of the candle is not less than a pip

The first assumption is important to designate doji from other candles such as spinning top. The second assumption makes sure that we disregard sessions without any movement (that is high and low overlap or very close to each other).

I have developed a simple indicator that locates doji candles on a chart based on these assumptions. It does not designate which doji you are dealing with. I will explain doji types in the next lesson and will present another indicator which is more sophisticated.

The following image shows a sample chart that contains some doji candles.

Download Basic_Doji_Finder Indicator [link]

The use of this indicator is very easy. All you need to do is to attach it to a chart. It immediately locates doji candles as shown in the preceding image. The existing file is the compiled version of the indicator. The source code of the indicator is available to my paid students only. Click here for more information about my MQL4 course.

If you are not familiar with using custom indicators click here to watch a video.

Next Lesson: Doji Candles - Part 2
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Previous Candlestick Lessons:

Lesson 01: An Introduction to Candlestick Charts

Lesson 02: Umbrella Lines - Reversal