This week I learnt about candlesticks and their meanings. The doji meant a reversal could form, so I came across it in my TA and I was wondering if this is what it is.
As you can see towards the end, there are several green candles, then a doji followed by something that also looks like a doji? (2 dojis?), then red candles begin to appear. Could this be a reversal?
The RSI and Stoch also show overbought conditions so I went short right after the 2nd doji (~1.113) (and it spiked up 50+ pips before going back down).
Possibly. Candlestick patterns can be useful to identify potential reversals but it’s best to use them in combination with other types of indicators. You have identified a potential reversal based on your correct analysis of the candlesticks. However, what gives greater strength this reversal signal is that it is happening at a key resistance level for EUR/USD.
As a matter of fact, I mentioned in another post today that the 1.1200 level was key resistance for EUR/USD based on analysis of real volume indicators.
the significance of a doji in an uptrend by itself is not significant. all it tells you is that in that session [candle] there was indecision in the market and nether the bears or bulls were able to take control. you need to look for CONFIRMATION of the reversal, for a doji to be more reliable. plenty of times you will get a doji …and then in the next bar the trend continues. look for confirming candlestick patterns for it to be more reliable.
example: a doji in an uptrend followed by a bearish engulfing candle, followed again by a bearish engulfing candle, occuring at a key resistance level [occording to your own technical analysis] would given you a reason to go short.
like jason has said, candlestick patterns should be used with technical analysis [support and resistance levels]
two doji’s in a row is not confirmation. i am not surprised it didn’t work out for you. also you were not at a key resistance level.
Doji as a single candle means “indecision”, and I woud not call it a reversal.
Now, in conjonction with other candles it may be seen as a reversal signal (evening and morning doji crosses for instance). It if comes at a specific resistance/support level, it is also a sign a reversal may occur at that level very soon.
In your example I would consider a possible reversal the two last doji, for the second is also en engulfing candle. But I would not short it because of the previous strong bullish candle.
