Forexoma bollinger bands
Doji is the most famous candlestick among all different kinds of candlesticks and Doji Star is the most famous Doji pattern. Candlesticks are the only real time technical analysis indicators. All the other indicators used in technical analysis are lagging indicators. Candlesticks are the only indicators that reflect the psychology of the markets big participants, buyers and sellers. There is no other indicator with such an ability and efficiency.
If not, please click here and learn it. Before you read the rest of this article, you should know what bullish and bearish candlesticks are; what body and shadow mean; what open, close, high and low prices are.
Doji is a kind of candlestick that its open and close prices are the same or very close to each other, and so it has no or a very small body. However, a Doji candlestick can have long shadows.
Lets take a look at some examples to know Doji candlesticks better and then I tell you how you can trade using Doji patterns and signals with the help of Bollinger Bands as a supplement indicator. As you see it has no body, because its open 1. It took one week for this candlestick to mature, but it closed exactly where it was opened 7 days ago. What does it mean? We will talk about it later. There are a few kinds of Doji candlestick: Rickshaw Man Doji, Gravestone Doji and Dragonfly Doji.
In Rickshaw Man, the open and close prices are placed at the middle. This kind of Doji is called Rickshaw Man by Japanese traders, because when you look at a Rickshaw man from the front side while he walks, you will see something like the below image:.
Doji Candlestick with Bollinger Bands Are Good Trading Tools
Gravestone candlestick is another kind of Doji that has no lower shadow. It means its open, close and low prices are the same.
If you look at a gravestone from side, you will see something like the below image, but this kind of Doji is called gravestone because of a different reason, not because it looks like the side view of a gravestone. As a reversal signal, Gravestone Doji forms at the top of a bull market.
In the past that traders were not able to sell short and buying long was the only way to make money , a Gravestone Doji at the end of a bull market was the end of making profit for traders. So they called it Gravestone:. An inverted Gravestone Doji is called Dragonfly Doji. A typical Dragonfly Doji has no upper shadow. A good examples of a Dragonfly Doji that made the price reverse very strongly: Doji can have many other shapes. Some of them are called Long Legged Doji candlesticks because they have extremely long shadows.
The longer the shadows, the stronger the signal. Sometimes Doji has a small bullish or bearish body, because its open and close prices are not exactly the same. Doji candlestick forms some important patterns. Memorizing the name of the candlesticks and their patterns is not that important. We just need to be able to recognize the signals.
Sometimes you cannot find any name for a candlestick pattern, but still you know that it has formed a good and strong trade setup or signal. There is an important Doji pattern which is called Doji Star. There are two kinds of Doji Star: Evening Doji Star and Morning Doji Star. A Doji Star forms at the top of an uptrend or bottom of a downtrend. A gap between the Doji Star and its previous candlestick is effective on the strength of the signal that the Doji Star candlestick forms.
When a Doji Star forms at the top of an uptrend, it is called Evening Doji Star, but when it forms at the bottom of a downtrend, it is called Morning Doji Star. It goes back to the time that stock traders could buy long only and they could not sell short. So they loved to see uptrends or bullish movements, but when a reversal signal formed at the end of an uptrend or on a bull market, they got upset because it meant that they had to wait maybe for a long time to have another bullish movement to go long and make some money.
So having a reversal signal on a bull market was like the end of the day which is the end of the daily business and making money. That is why a Doji Star on a bull market is called Evening Doji Star.
As you see on the below chart, there is a gap between the Doji Star and its previous candlestick 1. This gap makes the Doji Star signal stronger. The bigger the gap,the stronger the signal we will talk about the meaning of Doji candlesticks and the way we can trade using the signals they form. Candlestick 2 is a confirmation candlestick. To trade using a Doji candlestick signal, we should have a confirmation which is usually the next candlestick.
We will explain about it later in this article. A Doji Star that forms at the bottom of a bear market is called Morning Doji Star. As you see, this candlestick has a small body, because its close price is a little higher than its open price, but it is still a Doji. Look at the next candlestick 1 which is a big bullish candlestick and is the confirmation candlestick that I talked about. Doji candlestick forms when the market is indecisive. Imagine a Doji candlestick on a weekly chart.
At the beginning of the week that the candlestick opens, it goes up or down throughout the weekdays, and forms its upper and lower shadows, but when the week is about to become over, the price gets closer to the market price at the beginning of the week, and finally our candlestick closes with the same or almost the same market price the market opened at the beginning of the week.
It means the market has not been able to take any special direction during the week and after a lot of struggle, it went back to where it was at the beginning of the week. This indecision happens while the market has been going up or down at least for a few candlesticks weeks.
So the market is not sure if it should keep on following the same direction, or it should reverse and take the opposite direction. Markets move and prices go up and down because of two things: When there is more buying than selling, market is bullish and price goes up and visa versa bearish market.
So price goes up when most people decide to buy and it goes down when most people decide to sell. When the price goes up and down for a period of time, but then goes back to the level that it was at the beginning of the period, it means buyers and sellers or bulls and bears have the same power and none of them is stronger.
They stop buying, and at the same time some of them start selling to collect the profit they have made. So the price will not go up anymore and it moves around the same level for a while. It is when a Doji candlestick forms. Now, if more buyers decide to sell, the price will go down and a reversal forms.
It is when the next candlestick after the Doji will forms the confirmation candlestick. If its direction is against the direction of the market before the Doji candlestick formation, it means market wants to change its direction. If buyers decide to keep on buying again, the price will continue to go up like it was used to be before the Doji candlestick formation.
A Doji candlestick is a reversal signal, but it needs confirmation. Its confirmation is the next candlestick, or sometimes one of the next a few or few candlesticks. If the next candlestick follows the direction that the market had before the Doji formation, it means no reversing will happen and the Doji should be ignored even if it is too strong.
So the Doji Star was not confirmed by the next candlesticks and had to be ignored as a reversal signal. A reversal signal will be formed, if the next candlestick forms against the market direction. To learn more about the confirmation candlestick, please read this article: The Importance of the Confirmation Candlestick. Therefore, Doji is not a reversal signal by itself.
To form a reversal signal, Doji needs to be followed by a candlestick that its direction is against the direction that the market had before the formation of Doji candlestick. Doji candlestick signals and patterns are sometimes tricky. If we add another tool to our charts, we can avoid many of the false signals and nothing is better than Bollinger Bands to help us do that.
As you can see, we already have the Bollinger Bands on all of the above examples. The secret is in the Bollinger Bands breakout. The Doji candlestick and preferably its previous and next confirmation candlesticks should break out of the Bollinger Upper Band, in case of Evening Doji Star, or the Bollinger Lower Band, in case of Morning Doji Star.
We will talk about the Bollinger Middle Band also and the way you have to deal with it. On the below chart, a Hammer candlestick is formed completely out of Bollinger Lower Band. We are talking about Doji, but on the below example, the reversal signal has become stronger by the Hammer the formed previously. A Doji is formed after the Hammer.
As you see, the lower shadow of Doji has broken out of Bollinger Lower Band. The long position should be taken after the confirmation candlestick close. Stop loss should be placed several pips below the lower shadow of Doji, or in this case, below the lower shadow of hammer. The first target should be the same size as the stop loss size at least.
You can collect a portion of your profit at the first target and move your stop loss to breakeven. Your second target can be twice of the stop loss size at least. I show you some examples from the signals that worked and then will show you some false signals and the way you can avoid them.
As you see, its lower shadow and also its small body are formed out of Bollinger Upper Band. The next candlestick opened with a gap up on Sunday afternoon and went up strongly, but then it went down and closed below the Doji close price and also the Bollinger Upper Band.
This is a strong signal. We could go short after the confirmation candlestick close, and our stop loss could be placed few pips above the confirmation candlestick upper shadow. Our second target could be easily triggered the next day. But the question is why it went down only for one candlestick after the confirmation. The reason is that market was already oversold, because it has been going down for such a long time. There were two strong bullish candlesticks already formed.
Therefore, market had already changed its direction. Taking a short position right after such a strong bullish movement is not a good idea. The Doji breakout is not strong enough, however, the previous candlestick breakout is strong. But this is not enough to go short. The confirmation candlestick encourages you to take a short position and place your stop loss few pips above the Doji or its previous candlestick upper shadow.
What if you are wrong? Your stop loss is there. I explained about the previous example. The market was oversold already and some bullish signals were formed. But Doji Star sell signal worked in the below example because the market was overbought and another sell signal was already formed 16 days before.
That signal tells us that bears are getting stronger and they are able to take the price down. The below screenshot shows three signals.
The first one is the signal that has to be ignored. Although the Doji and its previous and next candlesticks have strong breakouts, the confirmation candlestick is strongly bullish.
So you always have to wait for the confirmation candlestick to close before you enter the market. The second signal is a good signal, but I would ignore it. I do not take the first reversal signal that forms at the top of a bull market or bottom of a bear market. The reason is that usually markets follow the same direction after the first reversal signal.
The third signal is an ideal reversal signal. So after the formation of the confirmation candlestick, we could trust the signal to go short and place our stop loss above the Doji upper shadow. It is time to ask me whether I trade these signals or not. I trade the strong candlestick signals with strong Bollinger Band breakout. Both the candlestick pattern and the Bollinger Band breakout have to be strong. On the below chart, the signals in the yellow zone are among the signals that we have to ignore I already talked about the signals that I ignore.
This is another example. The below chart also shows a Doji signal that has to be ignored. Almost half of the previous candlestick also formed out of Bollinger Lower Band. In general, to have a reliable reversal signal, we need something more than a Doji which is the confirmation candlestick.
Additionally, Bollinger Bands breakout is very important. We have to know where the reversal signal is formed. If it is at the middle of a strong bull or bear market, it has to be ignored. The first reversal signal that forms at the top of a strong and fresh bull market or at the bottom of a strong and fresh bear market is not a reversal signal.
Bollinger Middle Band is a tricky area. You should avoid taking any positions when the price is moving around this area, unless there are enough evidences that help you guess the next market direction. The Doji on the below chart is not a trading signal. It is just a candlestick that reflects the market indecision.
How to Use Bollinger Bands in Forex | OANDA
It is not easy to guess. If you say it will go up because of the long and big bullish candlestick that formed below the Bollinger Middle Band, I would say what about the several bearish candlesticks that formed before. It may go down because it has been going down before and it broke below Bollinger Middle Band and it is just retesting now.
So it will go down. Both ideas can be correct. It went up and broke above Bollinger Middle Band, but then went down to retest the Middle Band and formed another Doji there. The confirmation candlestick also is a strong bearish candle. This Doji and its confirmation have formed a good reversal signal. Would you go short now? I would not because both of these candlesticks are closed above Bollinger Middle Band.
The below chart shows the whole story. One Doji below Bollinger Middle Band and another one above it. Both f them were retesting candlesticks. It is not impossible to guess the market direction when it is around Bollinger Middle Band but it needs more experience.
The uptrend is strong; 2. Read about the importance of the lower shadow in an uptrend: Candlesticks Lower Shadows on an Uptrend. The Bollinger Upper Band breakout was not strong enough at all.
Also, both the Doji and confirmation candlesticks are too weak to be known as a reliable reversal signal on such a strong bull market. Above all, the signal was the first sell signal after a strong bull movement. So we should have ignored it. A Doji candlestick can be known as a strong reversal signal when it is strong enough itself and it is strongly confirmed by the next or one of the next a few candlesticks.
A Bollinger Bands breakout is a must to trust a Doji candlestick signal and to filter out the false signals. But is it we have to wait for days to form such strategy? Please explain more and more, not stuffy but useful.
However, I give you lot of thanks to you. It depends on the time frame. If you work with daily, then yes, you have to wait for several days to see a trade setup. What a wonderful article that can put food on the table Wishing you all more pips and more continuous learning. Since I am somewhat new to the concept of using candlestick patterns are there a few in particular that starting out using this system one should focus on?
Learn about the two strong candlestick patterns we are used to follow: I was reading about the dojis and i realized that a doji was formed on the uptrend of the the usdchf 3 days ago daily chart. The previous candlestick closed above the upper bb. The next candlestick which is a confirmation has went down so i was supposed to go short but i didnt because i considered the uptrend to be strong. However the usdchf is overbought. But still the candlesrick after the confirmation went up.
What r ur analysis regarding this doji? Chris could you write what Bollinger Bands values should be set for each time frame to trade this way? Does doji work with stock, trends, sideway, hourly, 15, 30 minuites charts? I really learn a lot these days from you Chris! I have not encountered such a quality explanations about forex as the LuckScout!
Thank you for that! In this article you mentioned that: But in the Candlestick video you have said that the entry and stop loss level will be determined using the confirmation candle. Both of them are correct. You can set the stop loss above the Doji high price or above the confirmation candlestick high price. The difference is that you will have a riskier stop loss if the confirmation candlestick high price is lower than the Doji high price.
If you like to have a safer stop loss, then you can place it higher which can be above the Doji high price. Of course you will have to take a smaller position accordingly when you set a wider stop loss. You are right wherever you set the stop loss. When it is closed to your entry, there is a higher risk that it gets triggered.
When it is far enough, then it cannot be triggered by the market normal fluctuations. This is what you have to decide as the trader. Both of them can be correct. There is no special rule for stop loss: I want to know if the confirmation candle of doji,high wave,pin bar or long shadow candles is longer in size and its high price is lower than doji high price ofcourse when it formed on an uptrend then where should we place our sl? You can see some examples here: I read that article months ago and a question come to my mind now when i come across with it.
If that happens, it means the trend wants to be continued and the Doji could not reverse it. If the confirmation really forms an engulfing which is agreeable to the trend direction, then yes you can follow the trend.
If the doji is formed on upper band and the confirmation is a bullish candle, does that mean we can buy? If the market is already overbought, then it can be risky to buy, unless there is something like a resistance breakout there to prevent the price from going against you. Do you mean that the confirmation needs to engulf Doji?
Is it normal that a candle closes at Thank you in advance. What is the best time frame chart to look for day trading, and what is the best time frame chart to look for long positions. However you have explained that it was only an indecision candle and needs confirmation. Engulfing bars are the strongest and does not need confirmation. May I ask again. BB breakout is a big confirmation for a too strong candlestick reversal signal, because when a too strong candlestick reversal signal forms while it has broken out of BB, it means the signal is formed when there was the highest possible deviation from the 20 SMA, and so there is a higher probability that the price returns to 20 SMA.
I especially loved the quizzes at the end. Such a clean and efficient trading strategy. Keep on writing, i live for these kinds of articles.
Some times it is bearish in a lower band breakout and sometimes it is bullish in an upper band breakout. Do we always check the market overbought and oversold condition after seeing every doji breakout? I am just excited to be the new member of LuckScout family. My name is Melusi from South Africa I have been looking for a mentor for a very long time but most of them charge very expensive fees like ZAR.
Hi Chris, I am new to forex and looking to make it my future job. I am trying to take it all in but there is a lot to take in. I am patient though. The only question I have for you is, when starting out and using a Thanks in advance and thank you for all of your articles.
In fact sir, you have just revealed the principle of making money to us all. Th good Lord will bless you in Jesus name. Candlestick 2 is a strong continuation signal. But the trend has to be really strong to go up after such a candlestick, because it has been going up for such a long time and is already overbought. One has to love the simplicity and the power of such a trading system!
No one teaches it quite like you Chris! You have a gift for teaching my friend.
It is very dear to my heart because it is the first system I study on fxkeys and finding it just in time from binary options makes it that much more a favorite of mine! Quality writing Mentor Chris! Sir, You are a great teacher. Can I trade Doji and Bollinger Bands without support and resistance?
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