What is a Doji? Definition, Formula, and Example
A doji is a candlestick pattern where the open and close prices are virtually equal, producing a cross or plus shape that signals indecision between buyers and sellers.
Plain-English Definition
A doji is a single-bar candlestick in which the opening price and closing price are essentially identical, producing a candle with no real body — just a horizontal line with wicks above, below, or both. It signals a standoff: by the end of the session, neither buyers nor sellers gained ground despite intraday movement. Munehisa Homma formalized the pattern in 18th-century Japanese rice markets, and it remains one of the most-referenced reversal signals in Western technical analysis.
How It's Identified
A bar qualifies as a doji when the body is negligible relative to the total range. A common quantitative threshold:
|Close − Open| / (High − Low) ≤ 0.05
Four main sub-patterns are distinguished by wick geometry:
- Standard doji: wicks on both sides, roughly symmetric.
- Long-legged doji: both wicks unusually long — heightened indecision.
- Dragonfly doji: open, close, and high at the same level; long lower wick. Bullish reversal signal at support.
- Gravestone doji: open, close, and low at the same level; long upper wick. Bearish reversal signal at resistance.
Signal strength depends on context — a doji mid-range is noise; a doji after a strong trend, at a Fibonacci level, or on high volume is a tradeable reversal candidate.
Worked Example
On a session in early 2026, TSLA opened at $180.50 after a five-day 14% rally. Intraday the stock pushed to a high of $184.20, sold off to a low of $176.80, and closed at $180.55.
- Body: |180.55 − 180.50| = $0.05
- Range: 184.20 − 176.80 = $7.40
- Body/Range ratio: 0.05 / 7.40 = 0.007
That is well below the 0.05 threshold — a textbook long-legged doji. The next session TSLA gapped down 3.2% and rolled over into a two-week pullback, a classic doji-at-the-top reversal.
When Traders Use It
Swing traders watch for dojis at prior swing highs, swing lows, or at round-number resistance (AAPL at $200, SPY at $500) as entry or exit triggers. The pattern is rarely traded in isolation — practitioners wait for confirmation in the next one or two bars: a close below the doji's low triggers a short; a close above its high triggers a long. Combined with an RSI divergence or a Bollinger Bands tag, the edge improves materially in backtests.
Intraday scalpers flag dojis on the 5-minute and 15-minute charts near VWAP as potential exhaustion points within a trend.
Limitations and Common Misconceptions
A doji is not a directional signal on its own — it announces indecision, not direction. Traders who short every doji at a high will be stopped out repeatedly during strong trends, where the pattern simply marks consolidation before continuation. Published studies (Bulkowski, 2008) measured doji reversal reliability at roughly 50–52% depending on sub-type — barely better than a coin flip without additional filters.
Dojis also inflate in frequency on low-volatility days, when the natural daily range is small. A stock grinding sideways can print multiple dojis per week without any meaningful change in trend. Finally, the pattern is timeframe-sensitive: a daily doji on a blue chip means something; a 1-minute doji on a thinly traded small-cap is usually one trade away from resolution.