Chart Analysis · Lesson 20 · Beginner
Neutral Candles: Doji, Spinning Top and Indecision
You read Doji and Spinning Top as indecision information rather than a reversal signal and understand the doji variants as a bridge to the reversal patterns.
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Balance instead of signal
Doji and Spinning Top are not reversal patterns. They show indecision: open and close are close together, neither side won the candle. That is valuable context information, but not an order to trade.
The common beginner mistake is to read every doji as a turn. What is correct: a doji at the end of a long trend raises your alertness, the decision comes only with the next candle.
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The classic doji has virtually no body, open and close are almost equal. In a range, dojis appear constantly and mean little. Only at the extreme of a mature trend does the doji become a warning that the momentum is fading.
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The Spinning Top has a small body with wicks on both sides. It says the same as the doji, only a bit softer: the market is undecided. As a signal generator it is no good, as a hint of fading momentum it is.
The directional variants
Two doji variants are not pure indecision but have a direction. The Dragonfly Doji with a long lower wick is bullish at the bottom, the Gravestone Doji with a long upper wick is bearish at the top. They are the bridge to the other two lessons.
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Interactive exercise: here you learn right on the chart, with feedback on every click. Sign up freeto start it.
You find the Dragonfly in the bullish catalog ct-candle-patterns-bullish, the Gravestone in the bearish one ct-candle-patterns-bearish. Both need the matching trend context and ideally elevated volume, otherwise they too are just undecided candles.
Test yourself
In the middle of a sideways range a doji appears. What does that mean?
- Little, in a range indecision is the normal state
- A sure reversal is imminent
A doji shows up at the top of a long uptrend. How do you trade it?
- Become alert, but wait for confirmation from the next candle
- Short immediately, the doji is the reversal signal
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The key points at a glance
- Indecision is not a reversal signal but context information: buyers and sellers are in balance.
- A doji at the end of a trend raises your alertness but on its own triggers no trade.
- Dragonfly and Gravestone are directional doji variants and belong in the bullish and bearish lesson respectively.
Deep dive
How often is a Doji really a reversal?
Rarely. A Doji only tells you that open and close are practically equal. In a range, Dojis appear constantly and mean nothing, their hit rate as a reversal signal there is barely better than a coin flip.
Only at the extreme of a mature trend, ideally at a zone, does a Doji become a genuine warning. The question is never 'Is this a Doji?', but 'Where is it?'.
Telling long-legged, Dragonfly and Gravestone apart
Dragonfly and Gravestone have a direction, they are effectively minimal Hammers and Shooting Stars. Be careful with crypto: on zoomed-in Bitcoin charts, real moves can look like Dojis. When in doubt, check the open and close values.
- Long-legged: long wicks on both sides, maximum indecision.
- Dragonfly: only a long lower wick, bullish at a bottom.
- Gravestone: only a long upper wick, bearish at a top.
Trading a Doji properly: the confirmation candle
- Only mark a Doji at a trend extreme or a relevant zone.
- Wait for the next candle, it shows the direction.
- Enter only when it closes above or below the Doji.
- A Doji on high volume carries far more weight at an extreme.
Sources: TradingFace: Technical and Graphical Analysis, Nison
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