swing trading

Doji Candlestick - How It Works and How Traders Can Use It

Stock Market Guides is not a financial advisor. Our content is strictly educational and should not be considered financial advice.

When it comes to the stock market, sometimes you might hear the term "doji candle" mentioned. It refers to a type of stock chart candlestick that is popular among active stock traders.

This article will explain what a doji candle is and how traders might be able to benefit from using it.

 

What Exactly Is a Doji Candle?

A doji candle is a type of price candlestick found on a stock chart.

Stock charts show how a stock's price has changed over time, and that price activity can be conveyed in different ways. One of those ways is with price candlesticks, or price candles, which are also sometimes referred to as price bars.

Each price candle represents a pre-specified period of time, such as one day or one hour. Candles give information that might be pertinent to an investor, including the open price, close price, high price, and low price of the period.

A doji candle is a special type of price candle where the open price and close price are the same (or very close to it).

 

 

That image is a graphical icon that gives an idea visually of what a doji candle looks like.

You can see that the body of the candle, whose height represents the difference between the open price and close price, is almost nonexistent. This candle looks like a cross. That means the open price is roughly equal to the close price of that candle.

 

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What Does a Doji Candle Look Like On A Stock Chart?

The image below is an example of a doji candle as shown on one of our stock charts.

 

 

The doji candle is the red one at the very far right of the stock chart, above the date of March 21.

The body of the candle is just a horizontal line with no height, which is the telltale sign that it's a doji candle.

Doji candles come in a variety of shapes and sizes. That particular one is relatively tall, and the open and close prices occurred almost exactly halfway between the high and low prices of the day.

 

How Do Traders Use a Doji Candle?

A doji candle is often seen as a sign of indecision in the market. It indicates that during that particular time period, the buyers and sellers were in relative equilibrium, with neither side able to exert significant control over the price.

The significance of a doji candle may depend on the context in which it appears. Many traders regard it as a potential reversal chart pattern.

A candlestick reversal pattern refers to a formation that may signal a change in the current trend of an asset's price. For example, a downtrend might see seller strength begin to weaken once a doji candle appears, and in turn might present an opportunity to buy.

 

Is a Doji Candle Bullish or Bearish?

A doji itself is neither bullish nor bearish. It can be an indication that the current trend may be reversing, though.

The direction of the current trend is what is potentially reversed. So, for example, if the stock has been going down prior to the doji candle, then the appearance of a doji suggests the stock might start going up. A trader could try to capitalize by going long (meaning that they would be buying instead of shorting).

If, on the other hand, the stock has been in an uptrend, and then a doji candle appears, it could be considered a signal that the stock might start going down. A trader could try to capitalize by shorting the stock or buying put options.

 

Are There Specific Types of Doji Candles?

Doji candlesticks come in a variety of shapes and sizes.

Long-legged doji candles are ones where the cross occurs in the middle of the candle, meaning that the open and close prices are roughly halfway between the high and low prices.

Dragonfly doji candles are ones where the cross occurs near the top of the candle, meaning that the open and close prices are close to the high price of the candlestick.

Gravestone doji candles are ones where the cross occurs near the bottom of the candle, meaning that the open and close prices are close to the low price of the candlestick.

 

How Do You Find Stocks That Have Doji Candlesticks?

You can find them by using our Doji Candle scanner. It's a free tool we offer here at Stock Market Guides. It uses our proprietary scanning technology to find stocks that just had a doji candlestick on a daily chart.

Here's how the scanner results look:

 

That tool ensures that you don't have to waste time flipping through stock charts manually to find stocks with a doji candle.

 

Example of a Doji Candle Trading Strategy

For this example of a doji candle trading strategy, we're going to use a daily chart, where each price candle represents one day of price activity. That means it would be a swing trading strategy where the trade is designed to last more than one day but not for the long haul.

 

Entry for the Doji Candle Trading Strategy

The entry for this Doji Candle trading strategy will be as follows:

If the price candle from two days ago was red, meaning the open was higher than the close, and if the price candle from yesterday was a doji candle, then we can consider buying a stock position the next morning at the opening bell.

The entry criterion for our Doji Candle trading strategy is very simple.

Exit for the Doji Candle Trading Strategy

There are a lot of possibilities here for the exit.

For any given trading strategy, it can be helpful to define three different criteria for the exit: profit target, stop loss, and time limit.

Not everyone uses all three, and that's totally fine. Ultimately, you can set these values however you want. But for the purposes of this strategy example, we will define all three:

 

  1. Profit Target

We will set the profit target at 1.5 ATRs away from the entry price.

ATR is an indicator in the stock market that measures a stock's recent price volatility. Most trading platforms have it available as an indicator you can enable.

Our profit target criterion indicates that we will take the ATR value of the stock, multiply it by 1.5, and add it to the price we paid when we bought the stock. That will be our profit target, and we can set up a sell limit order at that price.

  1. Stop Loss

We will set the stop loss at 2 ATRs below the entry price. This means we take the ATR value of the stock, multiply it by 2, and subtract it from the price we paid to buy the stock.

That will be our stop loss, and we can set up a stop order at that price.

  1. Time Limit

We will set the time limit as one week since this is a swing trade. If the stock has not hit either the profit target or stop loss by the time limit, then we will close the trade manually at the opening bell seven calendar days after entry.

 

How Well Do Doji Candles Actually Work?

The idea of a doji candle trading strategy sounds nice to many people because it offers a clear, easy-to-understand way to find a trade setup.

But does it actually work? Can traders indeed generate profits by trading doji candles?

That's exactly what our company can help answer for you, since our scanner technology has allowed us to do our own research on that precise question.

The answer is that trades based on a doji candle are not always profitable, but for certain stocks they might indeed have a track record of success according to our backtest research.

Here is some data that shows how a proprietary doji candle trading strategy we created has performed historically according to backtests:

 

Backtest ResultsAs of March 28, 2025 at 5:00pm Eastern Time
TIMEFRAME

Wins

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Losses

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---

Win Percentage

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---

Annualized Return

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Anyone who signs up for our swing trading scanner service will be able to see stocks that qualify for that trading strategy in real time.

 

Learning More About Doji Candles

You can contact us any time if you would like to ask any questions about doji candlesticks or anything else related to the stock market.



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Stock Market Guides identifies swing trading opportunities that have a historical track record of profitability in backtests.

Average Annualized Return

?

79.4%

Learn More