Basically, there are three kinds of trends: uptrend, downtrend and sideways trend.There are distinct candlestick patterns, which are considered as neutral or indecisive patterns. They occur while the stock moves sideways or pauses after a rally or sharp fall. The most common among these is the doji pattern. In candlestick chart, the doji pattern is a frequently found pattern of financially traded assets such as stocks, futures, commodities etc. The pattern is characterised by being small in length — meaning a small trading range — with an opening and closing price that are virtually equal.

Signalling indecision When the opening price and the closing price of a stock are almost equal, the candlestick pattern is known as doji. The body of these patterns is just a small horizontal line. The shadows or wicks can, however, be of varying length. A doji candlestick pattern with long upper and lower shadows indicates substantial indecision. The design of the doji pattern demonstrates why it indicates indecision. Once trading begins and the bulls take control, prices rise, but the bears then take charge and pull down the price below its opening trade. The bears turn weak and are unable to maintain the price at lower level and bulls take control and push the prices back up.

Doji can be formed the other way also — price declining initially and then moving higher later and closing back where the price started the session. There are four types of doji candlestick patterns — neutral doji, long-legged doji, dragonfly doji and gravestone doji.

The doji line with small lower shadow and upper shadow is a neutral doji candlestick pattern. This pattern occurs when buying and selling activity is at balance. The long-legged doji is similar to the neutral doji, except that the shadows are long.

Doji line with long lower shadow and no upper shadow is called a dragonfly doji candlestick. This is believed to have bullish implications. It is formed when the security falls lower but recovers all the losses and closes near the day’s high or opening level.

Gravestone doji pattern is the opposite of dragonfly doji pattern. The upper shadow is longer and there is no lower shadow. The implication of gravestone doji is bearish.

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