Should a DOJI always be read as a shift in trend, even if the current trend is very small? In other words, suppose that a stock has been in a downward trend for some time, then it does a small reversal (about 10% of its down trend), should a DOJI at that point be a signal that the larger downward trend is about to end, or a signal that the small reversal is about to end, and the downward trend continue? thanks.


Candle stick patterns are generally an indication of possible short term changes in price direction (if a reversal pattern). A doji is such a reversal candle, and should be read as there could be a short term change in the direction of price action.

A doji is most effective at peaks or troughs, and the outcome can be a higher probability if occuring during overbought conditions (at the peak) or during oversold conditions (at the trough).

So a doji should be used for short term changes in direction and not a total change in the overall trend. Although there could be a doji at the very top of an uptrend or at the very bottom of a downtrend, we wouldn't know it was the change of the trend until price action confirms it.

The definition of an uptrend is higher highs and higher lows. The definition of a downtrend is lower lows and lower highs. So an uptrend will not be broken until we have a lower high and confirmed by a lower low, or a lower low confirmed by a lower high. Similarly a downtrend will not be broken until we have a higher low confirmed by a higher high or a higher high followed by a higher low.

Another thing to consider is that doji's and other candle stick patters work best when the market is trending, even if they are only short term trends.

You should usually wait for confirmation of the change in direction by only taking a long trade if price moves above the high of the doji, or only taking a short trade if price moves below the low of the doji.

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