#adp02The Doji Candlestick Screen is the 3rd in the series: Japanese Candlestick Trading: Stock Screens for 15 Candlestick Patterns .

For those of you familiar with candlestick trading, the Doji is nothing new. If market opens and closes at almost exactly the same price, this forms a Doji.

As you can tell from the image, the wicks of a doji can appear in varying lenths, and can form a cross, inverted cross or a plus sign.

Pattern Specifics

Ideally, the open and closing price should be equal to form a true Doji. This formation is significantly more rare than those with “similar” open and closing prices. Naturally, a true doji is a more reliable signal, however there is some room for the trader to use discretion. Traders should simply understand the essence of this important candlestick.

A Doji demonstrates indecision about the direction of the market and it represents a tug of war between the bulls and the bears. The Doji candlestick shows that prices has moved above and below the opening price during the day, closed at or very near the opening price. In the end the result is a standoff. It shows that neither the bulls nor the bears were able to gain control during the day and it is possible that a turning point can develop soon.

Trading Doji

Doji need to be considered in combination with the current trend and preceding candles. After a long move in one direction, a doji signifies that demand is drying up, and perhaps a correction is in order.

My favorite method of trading Doji is one I learned directly from Steve Nison, the father of Japanese Candlestick trading in the West. The method is to find a Doji at or near the boundaries of a channel.

In other words, if the Doji occurs at the top of an rising channel, a bearish correction or trend reversal would be expected. If the doji were to occur at the top of a falling channel, this would signal a bearish trend continuation.

The Stockfetcher Stock Screen
Today’s stock screens are going to be different than the first two in this series. The reason is that screening for Doji alone isn’t going to provide much trading profit for traders. All of the trades in this article utilize StockFetcher.com’s SF2.0 as the stock screening engine

Instead what I’ve done is created 6 different stock screens that apply technical analysis in the form of trend identification, with the occurrence of doji at important price levels.

Doji in an Up Trend

Up-trending Stock with Doji appearing Near Resistance
Show stocks where close is above 5
and average volume(30) is above 250000 do not draw average volume(30)
and MA(20) is above MA(50)
and MA(50) is rising
and high is less than 0.01% below resistance(65,10)
and open is equal to close
and draw resistance(65,10)

Example:

Click To Enlarge

Up Trending Stock with Doji Near Support
Show stocks where close is above 5
and average volume(30) is above 250000 do not draw average volume(30)
and MA(20) is above MA(50)
and MA(50) is rising
and low is less than 0.01 above support(65,10)
and open is equal to close
and draw support(65,10)

Up Trending Stock Near the Top of a Rising Channel
Show stocks where close is above 5
and average volume(30) is above 250000 do not draw average volume(30)
and MA(20) is above MA(50)
and MA(50) is rising
and price is near the top of an increasing 30 day channel
and open is equal to close

Doji in a Downtrend

Down Trending Stock Approaching overhead Resistance
Show stocks where close is above 5
and average volume(30) is above 250000 do not draw average volume(30)
and MA(20) is below MA(50)
and MA(50) is falling
and high is less than 0.01% below resistance(65,10)
and open is equal to close
and draw resistance(65,10)

Down Trending Stock Near Bottom of Decreasing Channel
Show stocks where close is above 5
and average volume(30) is above 250000 do not draw average volume(30)
and MA(20) is below MA(50)
and MA(50) is falling
and high is less than 1 above support(65,10)
and open is equal to close
and draw resistance(65,10)

Down Trending Stock Near Top of decreasing Channel
Show stocks where close is above 5
and average volume(30) is above 250000 do not draw average volume(30)
and MA(20) is below MA(50)
and open is equal to close
and price is near the top of an decreasing 30 day channel
and draw MA(20)
and draw MA(50)

Options For Adjusting Doji Candlestick Screens

For these examples, I used 20 and 50 day simple moving averages to help identify the trend. Feel free to use any moving average you’d like. You could also substitute the ADX or other indicators in the screen.

To substitute a true Doji (open = close), use the following code.
and abs(open minus close) is less than .05

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