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Figure 1. Long-Legged Doji (basic candle).
Japanese name: juji, yose
Forecast: lack of determination
Trend prior to the pattern: n/a
Opposite candlestick: none
Related candle: High Wave
Construction:
- a doji candle
- opening and closing prices are the same or similar
- upper and lower shadow are very long
- body is located in the middle of the candle or nearly mid-range
- appears on as a long line
This article is devoted to the Long-Legged Doji basic candle.
The literature contains many descriptions about doji candles that provide examples of schematic thinking. It is widely accepted that doji candles are neutral. However, it is an extremely important type of candle which should be interpreted differently for different types of situation.
One example is a Long-Legged Doji basic candle. The appearance of this type of doji on a chart can be a sign of a reversal -- especially if it occurs after a Long White Candle. Seiki Shimizu writes that the traders often take positions in the direction designated by the opening of the candle following the Long-Legged Doji (i.e. if the opening is lower, take a short position and vice versa). This is very aggressive behavior -- it is important to recognize that when the market returns to trend after the doji, it is considered as a sign of defeating the momentary weakness.
It is worth remembering, how the creation of this candle comes about. The opening and closing price are equal, but during the day (if we are using daily candles) we are dealing with extremely rapid growth and decline. Such situations indicate considerable concern among the traders. In many cases, these rapid movements take place within a few minutes. It can represent a momentary euphoria causing strong increases and then sudden escape from the market or vice versa. Therefore, the next candle is of great importance for the interpretation of subsequent events.
Figure 2. On the Intel Corp. candlestick chart we can notice two instances of Long-Legged Doji basic candle. In both cases the market context prior pattern occurrence is crucial. Before the first occurrence of Long-Legged Doji basic candle, a Rising Window pattern occurred, although a significant trading volume was not confirmed within the few next days. Moreover, the occurrence of Long-Legged Doji (above the trendline) and the Turn Down pattern canceled the Rising Window pattern, and prices fell back again under the trendline.
The second occurrence of Long-Legged Doji (under the trendline) suggests a market weakness in regard to the breaking of the trendline and price increases. This market weakness is confirmed within the next couple of days.
