Definition
A doji is a candlestick where the opening and closing prices are nearly identical, creating a very small body with wicks extending above and below — it signals indecision between buyers and sellers during that period.
Example
“After seven straight green candles, a doji formed right at the prior-week high with volume drying up. I tightened my stop because that was the market telling me momentum was stalling.”
Detailed Explanation
The doji represents a draw — buyers pushed price higher during the candle, sellers pushed it lower, and by the close neither side had won. In isolation, a doji has low predictive value. But in context, it can be a powerful early warning: a doji at a major resistance level after an extended run says that buyers couldn't hold new highs, while sellers couldn't push significantly lower. That balance typically breaks one way soon, and understanding the surrounding context helps determine which direction.
Different types of doji carry different meanings. A long-legged doji with long wicks in both directions shows maximum indecision and whipsaw action during the period. A gravestone doji (long upper wick, no lower wick) appears after a rally and shows buyers pushed the high but sellers drove it all the way back to the open — a bearish signal near resistance. A dragonfly doji (long lower wick, no upper wick) does the opposite at support — sellers tried to push lower, buyers rejected it completely, and price recovered to the open.
The most important thing to understand about dojis: confirmation from the following candle is essential. Trading solely off a doji pattern — especially on short timeframes — is low-probability. The real signal comes when the next candle shows follow-through in one direction. A bearish doji at resistance confirmed by a red candle closing below the doji's low is a much higher-conviction signal than the doji alone. Always wait for confirmation.