Long Legged Doji Candlestick Patterns: Candlestick patterns are effective tools used by traders to forecast market movements and make profitable decisions in the world of trading. Out of the various candlestick patterns, the Long-Legged Doji is a candlestick pattern that is frequently used as an indicator to identify the uncertainty in the market.
In this article, we will discuss the Long Legged Doji Candlestick Patterns, which is one of the types of doji candlesticks, and understand how you can trade with them.
What is a Doji Candlestick Pattern?
A Doji candle is a candlestick that is formed when the opening price and closing price of the security/stock are at the same level or very close to each other.
Here both the buyers and sellers both are present in present in huge numbers and are exerting equal force on the security which results in the security opening and closing in the same price range.
The wick or the shadows of this candlestick will vary depending on the amount of pressure of the buyers or sellers on the price of the security. Based on the length and the direction of the wicks, the doji candlestick can be categorized into standard doji, long legged doji, dragonfly doji, gravestone doji, and 4-price doji. Now that we have understood the basic concept of the doji candlestick, let us understand how long-legged doji works.
What is a Long Legged Doji Candlestick Patterns?
A Long Legged Doji is a candlestick pattern that is formed when the opening price and closing price of the security are at the same level or very close to each other and also when the candle has long wicks both on top and bottom of the body.
In this candlestick formation, a large number of buyers try to push the price higher but get rejected by the sellers. At the same time, a huge number of sellers try to push the price down but are rejected by the buyers. This results in the pattern having long wicks on either side and, the opening price and the closing price being on the same level.
This Candlestick can be confusing as there is no clear sense of direction in the market and both Bulls and Bears are indecisive about the likely next move in the market.
How to Trade Long Legged Doji Candlestick Patterns?
As mentioned earlier, a Long Legged Doji can be used in a bullish as well as a bearish market. Here’s how you can enter the trade with the help of this pattern.
When To Enter a Trade?
In this candle, If the price of the security rises above the upper wick of the candle, one can enter a buy position in the security. If the price of the security comes below the lower wick of the candle, one can enter a sell position in the security.
The following images will give a clearer picture of when you can enter a long position or short position using the Long-Legged Doji Candlestick patterns.
The image shows the time you can enter a long position in a security.
The image shows the time you can enter a short position in a security.
Stop Losses:
Setting a stop loss in this pattern is also a simple process. In the situation where you have entered a buy position in the security, the stop loss should be located at the bottom wick of the candle.
In the situation where you have entered a sell position in the security, the stop loss should be located at the top wick of the candle.
The following images will give a clearer picture of when you should exit a long position or short position using the Long Legged Doji Candlestick Patterns.
The image shows the time you should exit the long position in a security.
The image shows the time you should exit the short position in a security.
Profit Targets:
The profit target for this pattern should be near the first level of support or resistance for the price of the security.
This support or resistance can be determined based on the levels where the price of the security has bounced back or reversed.
If you have entered a long position in security, the profit target should be at the resistance level of the security
If you have entered a short position in security, the profit target should be at the support level of security.
Example of Trading a Long-Legged Doji:
Example 1: Here’s an example of how you can trade using Long legged Doji Candlestick Patterns when the breakout is on the upside.
In the above chart, the price security has opened above the upper wick of the long-legged doji pattern. When this occurs, you can enter a long position in the security and exit your position when it reaches the first level of resistance.
In case the, security reverses back before reaching its target, the lower end of the long-legged doji should be kept as a stop loss.
Example 2: Here’s an example of how you can trade using Long legged Doji Candlestick Patterns when the breakout is on the downside.
In the above chart, the price security has opened below the lower wick of the long-legged doji Candlestick Patterns. When this occurs, you can enter a short position in the security and exit your position when it reaches the first level of support.
In case the, security reverses back before reaching its target, the top end of the long-legged doji should be kept as a stop loss.
Also Read: 30 Important Candlestick Patterns Every Trader Should Know
In Closing
In this article, we discussed the formation of the long legged doji Candlestick Patterns and how you can trade using this pattern.
The long-legged doji pattern is a versatile chart pattern that can help individuals gain in different ways in the market. But this pattern is also known as an indecision pattern suggesting that there is no clear indication of where the price of the security might move. Thus, it is recommended that traders use indicators along with the pattern which can help you add further conviction to your trades.
FAQ:
1. What does a long-legged doji indicate?
A long-legged doji indicates indecision in the market. It occurs when the opening and closing prices are close to each other, but there has been significant price movement in both directions during the trading session.
2. Is a long-legged doji candle bullish or bearish?
A long-legged doji candle is neither bullish nor bearish. It represents market indecision and suggests that the balance between buyers and sellers is relatively equal. Its significance depends on its position within the overall trend and other technical indicators.
3. Does it matter if a doji is red or green?
Yes, the color of a doji matters because it indicates whether the opening price was higher or lower than the closing price. A green doji indicates that the closing price is higher than the opening price, while a red doji indicates the opposite. This information can be useful for traders to analyze market sentiment.