The first thing that you need to know is that a doji is only significant after an extended move to the upside for a short setup or an extended move to the downside for a long setup. This stock has formed a diamond top reversal pattern and it has two "tails" that show that the sellers are getting aggressive at this price area. This is mainly due to the fact that even if a doji does signal the beginning of a price swing reversal, it will not give any indication as to how far the reversal my go or how long it may last.
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A candle is blue if buyers were able to push prices above the opening price and were able to hold it until the close of the candle. A candle is red or bearish is sellers were able to push prices below the opening price and hold it there until the close.
On the other hand, the doji candles have no color. The doji and long-legged doji illustrate the battle between buyers and sellers that ended in a tie. The opening price and closing price are in the same place as bulls were unable to close prices higher and bears were unable to close prices lower. Ideally, you want to find a doji that has formed near a level of support like a trend line. You want to identify the doji high and the doji low as this will determine the support and resistance levels of a potential breakout.
Next, you want to wait for a full-bodied candle to close either above the doji high or below the doji low. Since bulls and bears have been at a standstill, a high volatility breakout should happen releasing this pent up pressure. If you get a breakout below the doji low, place a protective stop about 4 pips above the doji high and enter short on the close of the breakout candle.
Calculate the doji range and multiply that times two to get the limit. Since your stop is the range itself, you want to target double your initial risk. On the other hand, if a full-bodied candle closes above the doji high, enter long at the close of the candle and place a stop 4 pips below the low of the doji.
That is your trigger to get long. In the example above, the doji range was 20 pips and twice the range gave me a target of 40 pips. Notice how significant the high of the doji was as it acted as support. It is important to note that some dojis during periods of low volatility, like those found in the Asia session, give many false signals.
So next time you see the doji on your forex charts, give the little fella some respect as it can tell you a lot about setting stops and limits for the next big breakout trade! When placing a buy order it is extremely important to account for the spread for that particular market because the buy ask price is always slightly higher than the sell bid price. In order to close the short, or sell, entry order the trader must place a buy order to either control the amount the trader is willing to lose with a stop-loss, or where to take profit with a limit order or multiple limit orders if multiple profits targets are established.
The size of each stop or limit order is based on the size of the entry order, or what is referred to as the traders open position. Although it is not uncommon for traders to have multiple profit targets, it is generally good practice to have one stop order that matches the size of the total open position thus taking the trader completely out of that position. At this point only half, if that, of the battle is over. What about the profit targets? Well, much like our entries and stops, our limit also should typically be based on support or resistance.
This gives a trader a logical point at which to exit the market. In this example, we will use the same Fibonacci analysis based on the rally swing, or trend prior to our completed doji to calculate potential levels of support where the projected reversal may stop and change directions.
No one no matter how experienced a trader, no one knows with any degree of certainty what the market will do next or how far the market will go. This explains why some traders may choose to have multiple profit targets.
This is where trend analysis, plays a significant role in helping to determine which profit targets, or how many, a specific trade calls for. This almost always leads to giving those profits back, and in many cases turning a winning trade into a losing trade. Multiple profit targets tend to lead to more complicated exit strategies in which stop management becomes essential. One key aspect of successful trading that will help to determine the quality and probability of a trade is the risk vs.
In my opinion, this is without question the single most important factor of a high quality trade. We will assume the most conservative profit target set just above the Depending on exactly where we enter the market we are able to determine 1 the risk vs. The risk itself will help determine the appropriate size trade to place. Assuming the risk vs. Obviously, this is just one example and in no way suggests or constitutes a standalone trading strategy or methodology.
However, the real point here is that profitable trading is not about complex indicators or systems. Above all is good risk and money management. This example demonstrated an opportunity with just over a 1: Understanding this in and of itself gives you and edge or advantage against a majority of traders out there.
Let go of you ego, play the numbers game, and you have a good chance of reaching your goals. The market may turn at these at these predetermined logical profit targets, or in many cases move way beyond them. A trader will never know this information in advance.