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The volume line is the key to understanding the trends of a stock. Fortunately, you can use this with the doji to adjust your strategies for trading. Some of the doji types are as follows:
Neutral
The neutral doji is one that features relatively small changes on the volume bar. The stock might not have been traded much at this point. You’d have to look at the total trading volume number to get an idea of what is happening with your stock. Meanwhile, the neutral line might show a good variance in how a stock was traded. Look for a stock listing that shows candlesticks representing shorter periods of time to get a better idea of how the doji was formed based on how often the stock went up and when it went down. This indicates how the stock in question might have shifted.
Long-Legged
A long-legged doji is similar to a neutral doji but with a dramatically different layout. In this, the volume bar is significantly longer than it might be elsewhere. This suggests that there was an even greater change in the value of the stock over the day. Again, this one will move up and down quite well. This is another instance of how people in the market might have differing opinions on how the stock is working. Some people feel that the stock is worth checking out, but others might say that the stock is not worthwhile. The essential thing is that the investors are uncertain as to how the stock is going to move.
One thing to note about a long-legged doji is that the stock attached to it might have a series of resistance bands on both ends. When you expand that doji in a read-out and look at the value of the stock during smaller trading periods, you might notice some significant changes in the stock’s value. It could have started the day down significantly and then moved up with a huge rally only to fall back again. You might see a trend where people are willing to sell the stock based on where it was moving at the end of the trading period. You can even compare this trend with other points relating to how the stock was moving.
Dragonfly
There are two types of doji that have certain trends that move up or down. These might predict certain changes in the value of the stock. The good thing about these two is that you don’t necessarily have to go into a deeper period of time to try and figure out what the value of the stock might be.
The dragonfly is the first of the two doji. This is one where the volume bar has a lengthy shadow underneath the candlestick. It shows that while the stock has not changed in value during that trading period, the stock still went down during that period. In other words, the opening and closing prices both occurred during the highest periods of the day for trading values. This suggests that the stock might be heading toward a certain point in the trading process. In most cases, the dragonfly doji suggests that the stock is about to decline in value. The doji just shows that people might not be confident in a stock. As investors look at the doji, they might recognize that the stock is falling. Perhaps it might be a sign that a positive trend is going to become negative.
Instead of looking into how the doji was traded in particular, you can look at some of the candlesticks that came before the doji was formed. You could use this to determine if the dragonfly doji is symbolic of a continuation. Maybe it might be a reversal. You can still look into the doji if you have an analytics program that lets you review the detailed period in which the doji was formed. This should indicate how deep the doji might be moving and how often it could have reached its lowest point in value during the trading period. Again, this is not as important as the long-term analysis of the stock.
Gravestone
The gravestone is the other doji that reflects significant volume shifts. The gravestone shows that the opening and closing values were the lowest totals of the day. The stock traded favorably and was going up but then dropped back down to its original value. It could be a sign that a bullish stock is about to go into a reversal and could be bearish. It might also suggest that a bearish period is about to end or is at least close to doing so. In short, the gravestone doji is the opposite of the dragonfly doji. After looking at the momentum of the stock, you can enter into a position where the stock will move up or down depending on what the doji suggests. Be cautious and allow for enough time to pass so you know what will happen with the stock.
4-Price
The 4-price doji is where all four parts of the stock were at about the same value. The high and low were about the same as the open and close. The 4-price doji is the ultimate symbol of conflict on the market. People are looking to buy and sell the stock at the same time. You should look at how the doji is formed based on the trading volume. You might find that the doji was formed due a period of minimal volume, thus making it harder for the stock to have a noticeable change in its value. Trade the 4-price doji only after you have looked at past candlesticks to see how the stock is moving. You can always wait a few trading periods before trading just to see where the doji might move and how it could expand in size, but it might also be too late depending on the sudden shift in the value being produced.
