Understanding the Long-Legged Doji Candlestick Pattern

The long-legged Doji in a technical chart usually appears when the closing and opening prices of a certain asset are almost identical. It shows a tug-of-war between buyers and sellers in the market, representing a strong market indecision. There are more than 40 recognised candlestick patterns in the trading community, and as a trader, you must learn about the long-legged pattern of a Doji for better trade decisions.

What is a Long-Legged Doji in Charts?

When this Doji appears, it means neither the buyers nor the bulls nor the sellers nor the bears can overtake each other. Also, the appearance of a long-legged Doji on charts means that the opening and closing prices of an asset are close to each other.

These identical opening and closing prices lead to the formation of lower and upper wicks on the body of a Doji.

Let us understand this scenario and the subsequent Doji formation more clearly with an example. Suppose a stock you are planning to invest in opens at INR 250 on the trading day. It rises to INR 270 and then falls to INR 240, and closes at INR 251 (near the opening price).

As a long-legged doji pattern typically represents uncertainty regarding price reversal, traders might want to wait and confirm with other indicators before making a trading decision.

Decoding the Formation of the Long-Legged Doji

Now that you know the long-legged doji meaning, let us decode its formation after it appears on trading charts:

1. Extended Shadows

   A long-legged Doji forms on charts with a small real body and longer upper wicks or shadows at both its ends. These shadows typically represent that there have been significant price movements during any trading session, as you saw in the example.

2. Smaller Body

   The small body of a long-legged Doji also bears a meaning for trading. Its smaller body forms as the opening and closing prices of any stock in a trading session are identical. It indicates the market indecision as neither the buyers nor the sellers had an advantage.

3. Market Context

   This type of Doji might appear when the market of an asset is in an uptrend or prices are going down. For example, if you spot a long-legged Doji in downtrends, and a bullish candle appears next to it, combined together they might indicate a bullish reversal. If the Doji is at an uptrend and the bearish candle follows, it often indicates a bearish reversal.

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Advantages And Disadvantages of Long-Legged Doji Candlestick Pattern

After understanding the long-legged Doji meaning, it is important to learn its various advantages and disadvantages:

How to Trade the Long-Legged Doji?

Here are some key pointers in terms of strategies that you may implement with it:

1. Strategy for Reversal

   When a long-legged Doji forms, you must wait for another candle to appear next to it. If you see it reversing its prior trend, consider entering in that direction. Suppose the Doji forms at INR 350 after a downtrend. The next candle closes higher at INR 360. It may signal a potential upward move.

2. Range-Bound Strategy

   In a consolidation phase with log-legged Dojis, you must set a proper take-profit target and a level of stop loss within its range. Suppose in a trading session, a stock fluctuates between INR 480 and INR 500. Here, you might set a take-profit near INR 498. Place a stop-loss near INR 482 to manage risk within that zone.

3. Combine with Other Indicators

   Relying solely on a long-legged doji pattern might not be a wise decision. Therefore, you must combine it with other indicators, such as waiting for a candle to appear next, using moving average, RSI, trade volume, etc, to confirm a trend reversal.

Conclusion

A long-legged Doji often appears on a trading chart when the opening and closing prices of an asset are identical. Appearing with longer wicks at both ends, it indicates a situation of indecision. However, confirming with a candle next, RSI and other indicators, you might enter a buy or sell position.

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FAQs on the Long-Legged Doji Pattern

1. Is a long-legged doji bullish or bearish?

This Doji does not represent a bullish or bearish momentum but indicates a situation of indecision. It says that neither the buyer nor the seller is winning in a trading session.

2. What is the difference between a long-legged doji and a dragonfly doji?

While a long-legged Doji represents market indecision, a dragonfly Doji typically represents a potential trend reversal upwards.

3. Which doji is bullish?

There are different kinds of bullish Dojis that traders follow, and they include a morning star, a Dragonfly, a hammer Doji, etc.

4. What is the power of the doji pattern?

The power or potential capability of a Doji is to showcase a market indecision followed by a potential price reversal either upwards or downwards.