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The Doji as a Neutral Candle

The Doji as a Neutral Candle

2010-02-25 21:40:00
Richard Krivo, Trading Instructor
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Instructor's Response:
 
You make some good observations here...

Checking a longer term time frame to determine the direction of the trend and then checking a shorter time frame to "fine tune" your entry represents a solid approach to trading. 

Since this EURCAD pair in a downtrend on the Daily chart, shorting the pair as you suggest will provide the trader with the greater likelihood of success. The presence of the doji provides us with an opportune entry signal to short the pair. It also provides us with an excellent indication of where to place our stop...just above the upper wick of the doji.

Keep in mind that a doji, in and of itself, is a neutral candle. Since the opening price of the candle and the closing price of the candle are virtually identical, it signals indecision and the potential for a change in direction.  Given that the doji appears at the apex of a bullish move on your chart, should the direction change, it would be a bearish move.  Should the doji appear at the bottom of a bearish move, should the direction change, it would be a bullish move to the upside.

chart 2 25 10
 

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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