Different Types of Doji

Different Types of Doji 

Gravestones

Dragonflies

The Rickshaw man

We’ve had a look at Doji candlesticks already, but there are a few hybrid Doji candles, and now is a good time to look at these, as they are also variations on the patterns we’ve covered above.

A candlestick is described as a Doji wherever the open and close are, as long as they’re close to each other. We may open and close near the bottom, near the middle, or near the top of a day’s range. As long as there is a small real body, it qualifies as a Doji. So let’s look at three entirely different Doji candlesticks, just to prove the point.

Gravestone Doji

Rules

Once again the first of these patterns has been named rather aptly. Let’s face it, there’s little doubt that a Gravestone Doji must be a bearish pattern. So what is a Gravestone Doji? It’s a Doji seen in an uptrending market, with an open and close at the bottom of the day’s range.

Getting Inside the Pattern

Let’s briefly step through the price action that goes into this one. We rally right from the very first trade, but at some point the buying runs out of steam and the market starts to sell off. This selling sees us right back down to the first trade of the day and the market closed at this level, leaving absolutely no (or a very small) lower shadow, as well as no (or a very small) real body.

Psychology

The buyers dominated early on, but it was all in vain, and the market was back on the day’s low by the time the bell went to send us all home.

What does this description sound like? Exactly like a Shooting Star, I hope you’re thinking to yourself.

It’s the ultimate Shooting Star, if you like, because the market closed on the day’s low, but also because the powerful Doji is combined with the powerful Shooting Star: a double whammy power play. It has an “A” shaped direction of travel with a close on the low.

Figure 3-18: Reed Elsevier; daily candlestick chart; 4 December 2007 - 11 February 2008, showing Gravestone Doji on 2 January

At the time that this Gravestone Doji was posted there was a gap support below at 661, but once this broke on a closing basis on 8 January the selling started in earnest.

Figure 3-19: Eurex Bobl futures; 10-minute candlestick chart; 22 & 23 April 2003

Figure 3-19 is a 10-minute chart for the Bobl futures, so each candlestick represents a mere 10 minutes’ worth of trade. As you can see the Gravestone Doji was posted around lunchtime on 22 April, making a new high for the day in the process with a 111.36 print. The market then headed steadily south from this moment onwards for the rest of the day, closing at 111.16. We will revisit this chart a little later as there’s a lot more to say on it.

Gravestone Doji Summary

A Gravestone Doji is the ultimate Shooting Star; a Doji candlestick, with an open and close at very similar levels, in this instance right on or very near the candle’s low.

This pattern is indeed something to feel rather morbid about, especially if you’ve been riding a strong uptrend. Your time might be up...   

Dragonfly Doji

Rules

Getting Inside the Pattern

What we have here is a Doji in a downtrending market with an open and close at the top end of the day’s range. This means the market sold off from the first trade, then recovered these losses to end the session right back where it started.

Psychology

The bears were winning the accolades early on but at some point (at the low to be precise) this balance of power changed, and from this point onwards the bulls dominated, right up until the close, which was also the high of the day and right back where the market started.

This has a similar psychology to the Hammer in that the market had a shocking start to proceedings, but had recovered nicely by the time the session finished, which could empower the bulls going forward.

This kind of pattern has two names that I’ve come across: a Dragonfly Doji, or an Umbrella Doji. Both are fairly descriptive of the shape, and obviously we’re talking about a bullish pattern if seen in a downward trend.

As with the Gravestone Doji, the fact that we’re talking about a Doji that also has all the attributes of a Hammer means it is a pattern that’s generally very powerful.

Example

Have a look at the chart in Figure 3-20. It’s the same chart as I showed earlier, with the Gravestone Doji on the high, except this time we’re looking at the developing downtrend, and we note that this ended a few hours into 23 April with a Dragonfly/Umbrella Doji.

 

Figure 3-20: Eurex Bobl futures; 10-minute candlestick chart; 22 & 23 April 2003

You may be wondering why I’m using an intra-day chart from 2003. Do these patterns turn up so rarely? It’s not so much that. I class this chart as one of my old favourites. It has featured in my seminars for many years, and for good reason.

And we haven’t finished with it just yet. We will come back to it for a third time in the next section, where we discuss the importance of volume to confirm candlestick patterns.

Dragonfly Doji Summary

A Dragonfly Doji or Umbrella Doji is generally a strong reversal pattern in a downtrending market. It is a Doji with an open and close at the top of the candlestick, leaving the real body looking like a line across the top of a vertical line, hence the rather descriptive names. These Doji look like an Umbrella or a Dragonfly. Not a pattern to be ignored.

Rickshaw Man

Inside the Pattern

The final pattern of this triumvirate is the marvellously named Rickshaw Man. This is a Doji with an open and close at, or very close to, the middle of the candle’s range.

Psychology

An open and close bang in the middle of the candle’s range, then. The failed attempt higher had equal price attributes to the selling to the lows that also proved to be unsuccessful. This can be classed as the ultimate in indecision. There was an almost total balance between buyers and sellers. Obviously if you see this sort of thing at an extreme high or an extreme low there may be a change afoot.

Examples

          

Figure 3-21: CBOT Corn futures (Pit session, unadjusted continuation chart); weekly candlestick chart; 13 October 2003 - 23 August 2004, showing Rickshaw Man on week of 5 - 9 April 2004

This near perfect Rickshaw Man right at the top of a move in corn gave us a significant top.

If you missed shorting this, the Shooting Star a couple of months later gave you another signal that the market was toppy.

        

Figure 3-22: Eurex Bobl futures; daily candlestick chart (adjusted continuation); 11 February 2008 - 23 April 2008, showing 17 March Rickshaw Man

The Rickshaw Man at the top of this chart signalled a high in the Bobl in March 2008. Hopefully you’ve noticed that this pattern was seen while the market was testing an important resistance - the high from a few days earlier. Four days later the market completed a Double Top and the significant sell signal we got from this combination served the bears well.

Rickshaw Man Summary

A Rickshaw Man is a Doji with an open and close near the middle of the candle’s range. I have to admit it took a while to find really good examples of this pattern, which proves that maybe it is only in here because its name has mildly amusing connotations of confused men carting Rickshaws around, unable to work out which direction to take next! I wouldn’t devote too much time in the pursuit of the perfect Rickshaw Man; there are better ways to spend your time!