Dojis are among the most powerful candlestick signals, if you aren’t using them you should be. Read on for tips on how to profit from them.
Profitable Doji Signals For Binary Options
Candlesticks are by far the best method of charting for binary options and of the many signals derived from candlestick charting dojis are among the most popular. There are several types of dojis to be aware of but they all share a few common traits. First, they are candles with little to no visible body, that is, the open and closing price of that sessions trading are equal or very, very close together. Dojis also tend to have pronounced shadows, either upper or lower or both. These traits combine to give deep insight into the market and can show times of balance as well as extremes. In terms of signals they are pretty accurate at pinpointing market reversals, provided you read them correctly.
Here are two articles with more on Japanese Candlestick Charting.
Like all signals, doji candles can appear at any time for just about any reason. All they really signify is a balance of today’s traders; if buyers and sellers are in balance during a session price action will remain stable. It takes other factors to give the doji true importance such as volume, size and position relative to technical price levels. Truly important dojis are rarer than most candle signals but also more reliable to trade on. Here are some things to consider.
First, how big is the doji. If it is relatively small, as in it has short upper and lower shadows, it may be nothing more than a spinning top style candle and representative of a drifting market and one without direction. If however the doji shadows encompass a range larger than normal the strength of the signal increases, and increases relative to the size of the doji. Candles wth extremely large shadows are called long legged dojis and are the strongest of all doji signals.
Second is where the doji appears; does it appear at a support or resistance line or is it floating in a no man’s land between two support/resistance targets. If it is not near a support/resistance line the signal is much weaker than if it is confirming a support or resistance. In fact, if the shadow, either upper or lower, crosses one of these lines and then closes above/below it the signal is quite strong indeed. One of this type appearing at support may be a shooting star, pin bar or hanging man signal; one occurring at support may be a tombstone or a hammer signal. Look at the example below. There are numerous candles that fit the basic definition of a doji but only one stands out as a valid signal. This doji is long legged, appears at support and closes above that support level.
Another confirming indication that a doji is a strong signal and not a fake one is volume. The higher the volume the better as it is an indication of market commitment. In respect to the above example it means that price has corrected to an extreme, and at that extreme buyers stepped in. It also means that near term sellers have disappeared, or all those who wanted to sell are now out of the market, leaving the road clear for bullish price action.
Doji’s can be trend following or indicate reversals so that must be considered as well. A doji confirming support during a clear uptrend is a trend following signal while one occurring at a peak during the same trend may indicate a correction. Same is true for down trends. Failing to account for trend, or range bound conditions, can be the difference between a profitable entry or not.
Some Final Thoughts On Doji Signals
While doji’s can be fantastic signals for binary options they should be considered a signal to look for entry, and not as an entry itself. In the example above a call option is clearly the correct thing to do but if purchased at the close of the doji could easily have resulted in a loss. The doji shows support like sonar shows the bottom of the ocean but that does not mean a reversal will happen immediately. The best thing to do is to wait for at least the next candle and target an entry close to support. This same is true for resistance as well.
Doji’s are also fine to use in any time frame but remember the rules. When changing time frames add this; the doji’s size and analysis is relative to other doji’s and candles in that time frame. A long legged doji doesn’t mean the same thing if they appear frequently on the charts unless it is significantly larger the average long legged doji.
Expiry will be your final concern. If entry is taken very close to the targeted support/resistance level a one or two bar expiry is most likely all you will need but it may be prudent to extend that out to 5 bars just to make sure.