Being able to read Japanese candlesticks is a skill that all binary option traders need to learn. In this lesson Sam teaches the Doji candlestick – similar to a pinbar candlestick, a doji candlestick, is a powerful single candle set-up and can be used as a trading signal.
BO107 Lesson – Doji Candlesticks Transcript
Welcome to Binary Options 107, Doji Candlesticks. This is the seventh video in our Binary Options 100 training course. And the course is brought to you by binaryoptions.education. In Binary Options 106, the previous video, we looked at pin bars and how they can signal a reversal in the market. We’re now going to look at doji candles and how they can also signal a reversal in the market.
So what does a doji candle look like? Well, it generally has an upper and lower wick. But the main characteristic of a doji candlestick is the body is a single line. So the opening and closing price of the candle is the same or very similar. So we get this line appear on the candlestick. Obviously, price moved during the duration of the candle. But the opening and closing price were the same or very similar.
Now, doji candlesticks come in a variety and fall under the category of one of these three– a gravestone doji where the body is at the lower end of the candle, dragonfly doji where the body is at the upper end of the candle, and then a long-legged doji where the body is central to the candle.
So why do these candles signal a reversal in the market? Well, if you can imagine prices moving heavily on the upside, we’re creating a number of bullish candles. And then we get a doji appear.
The doji can tell us that the buying power has become exhausted, that the buyers have pushed price continually on the outside, and then they can’t push it any further. Price finished at the same level that it started. So the buying power could be exhausted. And obviously, the same could happen on the downside if price is coming heavily on the downside. And then we get a doji appear that can act as a signal that the selling power has become exhausted, and it’s time to go in the opposite direction.
I’ve also included a spinning top in this video, because I think this is a good time to cover spinning top. These can signal reversals also, just like dojis and pin bars. And the spinning top is a candle with a small body and an evenly-balanced upper and lower wick.
Spinning tops can signal indecision in the market. Price has neither gone significantly higher or lower. And there’s a balanced amount of power between the bulls and the bears. So once again, getting a spinning top at the top of a push or at the bottom of a push on the downside can signal a reversal.
So let’s look at some examples of these doji candles and spinning tops. This is the Euro-USD one-hour chart. I’ve been looking at this price data down here. You’ll notice we have a pin bar here– and we looked at pin bars in the last video– which can signal a reversal. There’s also a pin bar here. Price comes up, we have a pin bar. And price then goes on the downside.
But let’s look at some doji candles. So price is coming down. We have six bearish candles in a row, and price is moving quite heavily on the downside. We then get this doji up here, a gravestone doji.
And you’ll notice as soon as the doji appears, price goes on the upside. We then have another push down. We have a dragonfly doji appear. And then price goes on the upside. We have another doji here. And price soon falls on the downside.
After this big push on the downside, we have a spinning top. Small body with an even wick, either side. And price goes on the upside.
So that is a few very simple examples of dojis and spinning tops. As always, please check out our website, binaryoptions.education, and continue with this course to learn more about technical analysis and binary options trading.