Long-Legged Doji

What Is the Long-Legged Doji?

The long-legged doji is a candlestick that comprises of long upper and lower shadows and has roughly the equivalent opening and closing price, bringing about a small real body.

Understanding the Long-Legged Doji

A long-legged doji signals indecision about the future course of the underlying security's price. Long-legged dojis may likewise mark the beginning of a consolidation period, where the price forms at least one long-legged dojis before moving into a more tight pattern or breaking out to form a recent fad.

Long-legged doji candles are considered to be most huge when they happen during a strong uptrend or downtrend. The long-legged doji recommends that the powers of supply and demand are approaching equilibrium and that a trend reversal might happen. This is on the grounds that equilibrium or indecision means that the price is done pushing toward the path it used to be. Sentiment may be evolving.

For instance, during an uptrend, the price is getting pushed higher and the close of most periods is over the open. The long-legged doji shows there was a fight between the purchasers and merchants in any case they ended up about even. This is unique in relation to the prior periods where the purchasers were in control.

The pattern can be found across any time span yet has greater significance on longer-term charts as additional participants add to its formation. It is part of the more extensive doji family that comprises of the standard doji, dragonfly doji, and gravestone doji.

Long-Legged Doji Trading Considerations

There are various ways of trading a long-legged doji, in spite of the fact that it isn't required to trade in light of the pattern. The pattern is just a single candle, which some traders feel isn't sufficiently critical, particularly since the price didn't move a lot of on a closing basis, to warrant a trade decision.

A few traders will need to see more affirmation — the price developments that happen after the long-legged doji — before acting. This is on the grounds that long-legged dojis can some of the time happen in clusters, or as part of a bigger consolidation. These consolidations might result in reversals of the prior trend, or a continuation of it, contingent upon what direction the price breaks out of the consolidation.

On the off chance that hoping to trade the pattern, here are some broad trade thoughts:

Entry: Since the pattern is seen as an indecision period, a trader could trust that the price will move over the high or low of the long-legged doji. On the off chance that the price moves above, enter a long position. In the event that the price moves below the pattern, enter a short position. On the other hand, keep a watch out in the event that a consolidation forms around the long-legged doji, and enter long or short when the price moves above or below the consolidation, separately.
Risk Management: If entering long as the price moves over the long-legged doji or consolidation, place a stop loss below the pattern or consolidation. On the other hand, in the event that entering short as the price moves below the long-legged doji or consolidation, place a stop loss over the pattern or consolidation.
Market Structure: The long-legged doji is bound to give a legitimate signal in the event that it shows up close to a major support or resistance level. For instance, in the event that the price is rising and, forms a long-legged doji close to a major resistance level, this might increase the possibilities of the price encountering a decline assuming the price dips under the long-legged doji low.
Taking Profit: Long-legged dojis don't have profit targets joined to them, so traders should think of a method for taking profits in the event that any ought to create. Traders could use technical indicators, or exit when the price crosses a moving average, for instance. A few traders might use a fixed risk/reward ratio. For example, if gambling a $200 trade, they exit the trade when they are up $400 or $600.

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Long-Legged Doji Example

The following chart shows a couple of instances of long-legged dojis in Tesla Inc. The models show that the pattern isn't huge on its own all of the time. However, the overall setting, or market structure, is.

On the left, the price is falling and afterward forms a long-legged doji. The price combines and afterward climbs. At last the price can't gain traction, however, and the price falls by and by.

As the price keeps falling it forms another long-legged doji. This is indeed the beginning of a consolidation period. The price breaks over the consolidation and moves higher overall. The long-legged doji didn't cause the reversal, however it foreshadowed the consolidation or indecision present in the market before the reversal higher.

On the right, the price falls and combines. The long-legged doji forms after the consolidation, dropping somewhat below the consolidation low however at that point energizing to close inside the consolidation. The price then broke higher. This doji had a marginally bigger real body.

Highlights

The pattern shows indecision and is most huge when it happens after a strong advance or decline.
The pattern isn't generally critical, and will not necessarily mark the finish of a trend — it could mark the beginning of a consolidation period, or it might just turn out to be an irrelevant blip in the current trend.
The long-legged doji is a candlestick that comprises of long upper and lower shadows and has roughly a similar opening and closing price.
While certain traders might act on the one-candle pattern, others need to see what the price does after the long-legged doji.