Long Legged Doji Candlestick Pattern: Backtest Findings

In markets with high volatility, the price may spike widely in a trading session and end up closing where it opened, giving rise to uncommon candlestick patterns, such as the Long-Legged Doji. As with many other candlestick patterns, this pattern tells a specific story about the market and how the price might move in the future. Want to know about the Long-Legged Doji candlestick pattern?

The long-legged doji candlestick pattern is a single-candle pattern that is characterized by little or no real body and long upper and lower shadows. The pattern forms in a volatile market with spiky price action and signals market indecision during the trading session. However, depending on where it forms and if it is part of other patterns, such as morning doji star, harami star, and evening doji star patterns, it can have a bullish or bearish reversal significance, as the case may be.

In this post, we take a look at the Long-Legged Doji candlestick pattern.

Understanding the Long-Legged Doji Candlestick Pattern

The long-legged doji candlestick pattern is a single-candle pattern that is characterized by little or no real body and long upper and lower shadows. This pattern occurs in a market with high volatility and price fluctuations. It indicates market indecision in a spiky volatile market.

The interpretation of the long-legged doji can vary depending on its position in the market and whether it is part of another pattern. When this pattern appears at the bottom of a downward price swing, it may indicate a bullish reversal, suggesting that the bears are losing strength and the bulls may soon take control. This is particularly true if the pattern is part of bullish reversal formations like the morning doji star, bullish harami star, or bullish doji tristar.

On the other hand, if the pattern is seen at the peak of an upward price swing, it could indicate a bearish reversal, suggesting that the bulls are losing power and the bears may soon dominate. This is particularly the case if it is part of bearish reversal formations like the evening doji star, bearish harami star, or bearish doji tristar.

The Significance of a Long-Legged Doji in Technical Analysis

Generally, the long-legged doji candlestick pattern is mostly seen in a volatile and spiky market. It signifies indecision among buyers and sellers during the trading session the candle represents. During the trading session, the price moved up and down and ended up closing around the same level where it opened, giving it a cross or inverted cross shape. As a result, the candle has no real body.

The movement of the price during the session demonstrates that neither the bulls nor the bears were in control, which is why it is considered an indecision pattern. However, when you consider where the pattern forms, it could actually signify a pause in the ongoing price momentum.

If the long-legged doji occurs at the bottom of a downward price swing, it may represent the end of bearish momentum, indicating the possibility of a price reversal. Similarly, if it occurs at the top of an upward price swing, it may signify the end of bullish momentum, suggesting the likelihood of a price reversal.

However, a long-legged doji on its own is not a strong enough indication of a potential reversal. It must be part of other reversal candlestick patterns such as the morning doji star, evening doji star, harami star, or triStar to have a significant reversal implication.

How to Identify and Interpret the Long-Legged Doji Pattern

Identifying a long-legged doji pattern is relatively simple, as it has a unique appearance on the price chart. To identify this pattern, look for the following features of the pattern:

  1. Very little or no real body: The real body of the candle should be very tiny or non-existent, as the opening and closing prices are almost at the same level.
  2. Long upper or lower shadows: The upper and lower shadows are long, but one is usually longer than the other. This gives the pattern a cross or inverted cross shape.
  3. Any color: The pattern can have any color, bullish (white or green) or bearish (black or red), depending on whether the closing price is marginally below or above the opening price.
Long legged doji pattern

The long-legged doji can form anywhere on the price chart, either after an upswing or a downswing. It mostly forms in a spiky volatile market. To accurately identify a long-legged doji pattern, you must consider the market context in which it forms — whether it forms in a downswing or an upswing and as a part of another pattern.

Long Legged doji pattern backtest

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Using the Long-Legged Doji to Predict Market Trends

The long-legged doji candlestick pattern can be a useful tool in predicting market trends, as it can signal a potential change in trend, at least, the short-term trends.

When the long-legged doji forms in a downtrend, it may indicate that the bears are getting tired of pushing the price lower, signaling a potential change in the trend direction. Similarly, if the pattern occurs at the top of an uptrend, it may indicate that the bulls are getting tired of pushing the price higher, which signals a possible change from an uptrend to a downtrend.

Apart from the trend where the pattern forms, the surrounding candlesticks can affect the reversal effect of the long-legged doji pattern. In a downtrend, if the pattern is part of a bullish harami star, a bullish tristar, or a morning doji star pattern, it has a more potent bullish reversal effect. Similarly, in an upswing, when the pattern is part of a bearish harami star, a bearish tristar, or an evening doji star pattern, it has a more potent bearish reversal effect.

The Role of a Long-Legged Doji in Forex Trading

A long-legged doji candlestick pattern can be used in forex trading. As usual, it indicates market indecision, but in the right location and market context, it could signal a potential reversal. When it appears at the top of a price swing high, it can indicate a bearish reversal, especially if it forms part of a multi-candlestick bearish reversal pattern like the evening star, bearish harami star, or bearish tristar.

Likewise, when it appears at the bottom of a downswing, it can indicate a bullish reversal, especially if it forms part of a multi-candlestick bullish reversal pattern like the morning star, bullish harami star, or bullish tristar.

Traders use these patterns around trendlines, long-period moving averages, and support/resistance levels to identify profitable trade setups.

Long-Legged Doji vs. Other Candlestick Patterns

A long-legged doji is a single-candle pattern that is characterized by little or no real body and long upper and lower shadows. It generally signals indecision in a volatile market.

The pattern is different from other candlestick patterns in that it doesn’t provide clear bullish or bearish signals on its own. Instead, its significance depends on its location on the chart and its relationship with other patterns. For example, when a long-legged doji appears at the bottom of a downtrend, it may indicate a bullish reversal if it is part of a morning doji star pattern.

In contrast, bullish patterns like the bullish engulfing pattern or the hammer pattern provide clear bullish signals, while bearish patterns like the bearish engulfing pattern or the shooting star pattern provide clear bearish signals. These patterns have a strong real body and often appear at the turning point of a trend reversal.

The Pros and Cons of Trading with the Long-Legged Doji Pattern

The pros of trading with the Long-Legged Doji pattern include:

  • It is simple to identify
  • It provides quick signals for traders to act on
  • It indicates market indecision and potential trend reversal

The cons of trading with the Long-Legged Doji pattern include:

  • The pattern may be subject to interpretation
  • Traders may disagree on its significance
  • It does not indicate price reversal on its own, only a loss of the current momentum

Common Mistakes to Avoid When Interpreting the Long-Legged Doji

When interpreting the long-legged doji pattern, there are certain mistakes that can lead to making bad trades. One common one is relying solely on the pattern: The long-legged doji is basically an indecision candle. It must occur in the right context with other candles to form a reliable reversal pattern. Even at that, you need to use other technical tools like trendlines, a support/resistance level indicator, and moving averages to find good trade setups. Relying only on the long-legged doji pattern can lead to a lot of bad trades.

Another mistake is not to consider the timeframe. Patterns that form on higher timeframes are more reliable than patterns that form on lower timeframes. Trading the pattern on a lower timeframe can lead to making poor trades.

Real-Life Examples of the Long-Legged Doji in Action

In the chart below, you can see a long-legged doji pattern that formed after a downswing and some consolidations. The pattern is surrounded by a spinning top to its left and another doji pattern to its right, giving it the semblance of a bullish doji tristar pattern.

Trade entry could be at the open of the next candlestick, and the stop loss should be below the low of the pattern. The profit target can be a 2:1 reward/risk ratio or at the next resistance level, as you can see on the chart.

Long Legged doji trading rules

Is a long-legged doji bullish?

No, a long-legged doji candle is not bullish in itself. The bullishness of a long-legged doji candle depends on the market situation where it forms. If the candle forms at the bottom of a downward price swing, it is likely to be bullish, especially if it forms around a key support level and other candlesticks around it support a bullish price reversal. For example, if it is part of a morning doji star, bullish harami star, or bullish doji tristar pattern, it can have a bullish reversal effect and thus be considered a bullish pattern.

But if the doji pattern occurs at the top of an upswing, it may not be bullish, unless it is part of a continuation pattern.

Is a doji candle bullish or bearish?

No, a doji candle is neither bullish nor bearish on its own. However, it can be bullish or bearish, depending on the market context in which it occurs. A doji candlestick that forms at the bottom of a downward price swing is likely to be bullish, especially if it forms around a key support level and other candlesticks around it support a bullish price reversal.

Similarly, a doji pattern that forms at the top of an upward price swing is likely to be bearish, especially if it forms around a key resistance level and other candlesticks around it support a bearish price reversal.

What is the dragonfly doji pattern?

A Dragonfly Doji is a candlestick pattern that is characterized by a little or body, a long lower shadow, and little or no upper shadow. It forms when the opening and closing prices are the same or around the same level and at the upper end of the candle, with a long lower shadow and no upper shadow.

Although considered an indecision pattern, the pattern may suggest a potential bullish reversal when it forms at a support level.

Is a double doji bullish or bearish?

As with the doji pattern, a double doji is neither bullish nor bearish on its own. However, it can be bullish or bearish depending on where it forms on the chart. A double doji pattern that forms at the bottom of a downward price swing is likely to be bullish, especially if it forms around a key support level and other candlesticks around it support a bullish price reversal. Likewise, a double doji pattern that forms at the top of an upward price swing is likely to be bearish, especially if it forms around a key resistance level and other candlesticks around it support a bearish price reversal.

FAQ:

How is the Long-Legged Doji pattern interpreted in technical analysis?

The interpretation of the Long-Legged Doji varies based on its position in the market. It may indicate a bullish reversal when at the bottom of a downtrend or a bearish reversal at the top of an uptrend, suggesting a potential change in price momentum.

What is the role of the Long-Legged Doji in predicting market reversals?

The Long-Legged Doji is a single-candle pattern characterized by little or no real body and long upper and lower shadows. The Long-Legged Doji’s role is to indicate indecision and potential reversals. It becomes more significant when part of multi-candlestick patterns like the morning doji star, evening doji star, harami star, or triStar.

Is a Long-Legged Doji always bullish?

No, a Long-Legged Doji is not always bullish. Its bullishness depends on its location in the market context. It may be bullish when at the bottom of a downtrend, especially if part of a bullish reversal pattern. Traders are advised to avoid relying solely on the Long-Legged Doji, considering the overall market context, and being cautious about timeframe influences to avoid common interpretation mistakes.

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