Types of DOJI candlestick
1) Long-legged Doji candlestickThe long-legged Doji is characterized by it's shadow of longer length.This Doji candlestick is far more dramatic than any other form of Doji.It have long shadows on both of it's sides which indicate that both of the Bears and Bulls had gained power or dominance over the other at some points of the time but till the end of session , price came back to it's opening price.
Based on it's position , different assumptions can be carved out from it. It may warn about any of the upward or downward trend.Doji outlines that the market is at equlibrium and the next candle about who won the game of price move between Bulls and Bears or it might also mark the start of a consolidation-period where the prices may form one or more long-legged Doji's.
They are considered to be most important when seen at the top or bottom of the graph as it suggests that the power is being shifting from Bulls to Bears or vice-versa in opposite trend and it may also be possible that the trend reversal takes place.
Long-legged Doji can form across any time frame , but have more significance over longer interval charts as more traders contribute to the formation of such charts. If price moves up than traders can enter to trade for long position and if price moves down ,than trader can think for short position .
It can be obsered with other trading indicators like Support and Resistance to get the better idea about the whole scenario.It becomes more important if it occurs near a major support or Resistance level.
2) Dragonfly Doji candlestickDragonfly Doji have a very long tail(lower shadow) while it's upper shadow is of negligible length or there is no upper shadow.
It suggests about an aggresive sell of stocks in between the session duration but the buyer were able to absorb the effect till the end. Ideally , it is a "T" shaped candlestick.
In general, it is considered to be a bullish reversal pattern occuring during the downtrend period.It outlines that a Bullish trend is supposed to arrive soon . the candle next to Dragonfly can be used for confirmaton, if the candle opens gapped-up than it can be attributed as a confirmation.
This Doji can be compared with the Hammer candlestick pattern as it have a shape very similar to this pattern .Also the conditions in which they are formed or what they depict are also similar.
3) Gravestone Doji candlestickGravestone Doji is the type of candlestick having a long upper shadow with no lower shadow or having a negligible length. Although it is a Doji , and therefore it does not tell much in isolation, but it can be considered as a Bearish reversal signal if it appears during an upward trend . This Doji occurs when Bulls loose the momentum but not let the momentum to be gained by Bears and thus both shares similar powers.
This Doji can be compared with the Inverted-Hammer candlestick pattern as it have a shape very similar to this pattern .Also the conditions in which they are formed or what they depict are also similar.
What does DOJI candlestick tell about ?As the body of Doji is really thin, this implies that it occurs when the opening and closing point of the session are almost similar or equal in value. Though, price have moved above or below the opening price(as the highest or lowest price of the candle indicates that) significantly, but the competetion between buyers and sellers was equal enough to bring the price pointer again near to the same level back.Doji represents the condition when bulls and bears are equally active which is not allowing the situation to become clear whether the stock price will rise or degrade its value.Therefore we can say that Doji describes the condition of indecision in the market during a particular period.But due to this reason , don't consider it to be of no use.I t may not be of much use if the market is not showing a clear upward or downward trend but if you see it during any of the upward or downward trend, it can be significant as it is showing the change in power distribution from any one of seller or buyer to both of them equally, and the trend reversal may take place but again this candlestick also does not confirm you to any particular result in future.
How to Study the DOJI candlestick ?First of all , it should be made clear that DOJI is not any kind of trend reversal indicator, it only represents the condition of indecision in the market.In isolation, Doji does not provide any hint about the future price movement.It can either be a trend reversal pattern or even a continuation pattern.
You have to study it with other signals or technical indicators.You should check whether it is a part of some other multi-candlestick pattern, for example, it replaces the baby candlestick in the Harami candlestick pattern and forms the Harami-cross candlestick patern.You should notice the type of Doji formed in the chart which will be somewhat more useful.
Trading or working with DOJI candlestickAs described earlier, tradinng alone with Doji might not be a wise step, you have to figure out at what position it is forming and what it may mean.For that, you can use derivatives such as spread bet's or CFD's as they allow you to trade in either of two conditions.
For the confirmation to check the trend reversal pattern with DOJI, you can use momentum indicators as they give us the basic idea that if there is enough force behind the trend to move in some direction or we can say that these indicators give the idea about the strength of trend and on the basis of that ,we can think to make a trade.
Remember : Doji does not represent any trend reversal but it suggests that the condition of indecision or unclearness is prevailing in the market.