Anticipate Forex Market Reversal with the Doji

In volatile and confusing markets it is good to have a signal rely upon. Such a signal is the Japanese Doji candlestick. One can often successfully anticipate Forex market reversal with the Doji. One may be trading a Euro recovery , watching the currency rise versus the dollar, Yen, and other majors. A trader may be simply holding on in search of more profits or scalping small profits with each upward tick of the market. In either case it will be important to know when the upward trend will cease. Not only will the trader wish to sell the currency he is holding but he may wish to purchase to counter currency in the trade or engage in an options strategy. He can be ready if he is able to successfully anticipate Forex market reversal with the Doji.

What Is a Japanese Candlestick?

Doji is the name for a trading signal, a Japanese candlestick. Japanese candlesticks are pictorial representations of price action of equities over a defined time period, usually a day but also months, weeks, or hours. Japanese commodity traders (rice) learned long ago that price patterns repeat themselves. They found that by knowing these patterns they could forecast future market movement and profit thereby. The Doji is one of these pictorial signals. A Japanese candlestick is a rectangle, the candle, whose height represents price action during a time period. A black candle tells us that the equity opened at the top price and closed at the low price. A white candle means that the low end of the candle represents the opening price and the top represents the closing price. Lines, like candle wicks, called shadows extend above and below the candle and represent the limits of trading for the time period. Traders using candlesticks can often anticipate when they will be trading a cheaper Euro , dollar, Yen, or Swiss franc based on these signals even before fundamentals are clear.

What Is the Doji Candlestick and What Does It Mean?

A Doji is a flat candlestick. A Doji tells us that the opening and closing price for the day or other time period are essentially the same. The Doji may have long or short shadows. A Doji may occur after a Forex uptrend, a Forex downtrend, or during a flat trading period for a currency pair. Anticipating a market reversal with the Doji has to do with what precedes the signal.

Anticipating a market reversal with the Doji is possible because the Doji indicates market indecision. When a Doji occurs after a well-defined uptrend it is a strong indicator of a downward reversal. When it occurs after a well-defined downtrend it is a strong indicator of a market that may head downward. During a flat market it tells of indecision but not market direction. Take our example above of a recovering Euro. A decided uptrend of the Euro versus the dollar, Yen or other currency has been underway. Then a combination of fundamentals and market sentiment lead to indecision. Bulls keep buying but bears have started to sell. This goes on for a trading day at the end of which the price of the Euro versus the dollar is little changed from its opening price. Fundamentalists may say that recent economic data predict a Euro Zone economic contraction and blame the reversal on that news. However, technical traders anticipating a market reversal with the Doji candlestick don’t really care. What they see is a pending market reversal and the potential for profit in a well-timed trade.