Doji as Support and Resistance

Given the way they are formed, the Dojis are patterns that can become support or resistance levels.

Indeed, in an uptrend, a Doji shows that buyers have not been able to maintain a higher price zone. The trend is thus running out of steam on this level.

The same goes for a downtrend but it will not be as obvious as in the uptrend thanks to the arrival of new buyers (except on the forex where the behaviour remains the same during a rise or a fall).

A Doji in the middle of a trend should not be seen as a true reversal signal but rather as a signal that the trend is likely to pause. In an uptrend, one could take advantage of this signal to collect gains if the Doji appears in an upper price zone or to take a long position f the Doji appears in a lower price zone (the same way in which one collects gains below a resistance and one takes a position above a support).

On this chart, numerous Dojis (or Japanese candlesticks that can be considered as Dojis) have become support or resistance zones.

The 1st Doji created the opportunity of collecting gains and gave rise to a pause before the trend resumed. The 2nd Doji occurred after a sharp acceleration and formed a Harami with the previous long green candlestick. It was then quickly corrected. The 3rd Doji was very interesting since it allowed one to take a higher position, especially given that it had formed at the same level as the 1st Doji which had created a resistance zone that had then become a support zone.

Then prices start to rise again until they reach resistance n°4 where two Doji-like Japanese candlesticks formed. Prices then drop towards support n°5 where they bounce back after a Hammer before going back towards resistance n°4. This is then the most important moment of the chart since three Dojis (among which two follow one another) form right below 8100 pts. We then observe a Triple-Top on this level and the two successive Dojis during the third rise of the Triple-Top are a very bad omen for the uptrend.

We then witness a sharp fall of prices before finding a momentary support zone (n°6) where two successive Dojis form.

On this chart, we saw most of the possible patterns where Dojis create support and resistance zones. One has to keep in mind that depending on the direction of the trend, a Doji must be considered as an opportunity to take position or as a signal for the collection of gains and not at all as a reversal signal that automatically offers a position entry.