How to Detect the Market Reversal by Doji
When the general market or a
security has virtually equal open price and close price, we say the Doji is
formed. Please be mindful, the equality is not based on an absolute value. It
should be within a thin range. A stock with $ 900 dollars like Google should
have large cushion than the stocks with value lower than $10 dollars.
The Doji is treated as a
significant market reversal indicator. It works more effectively when the
market is in either violent upward market or destructive downward market, especially
when the market movement is associated with large volume.
According to Wikipedia, we can
use a doji in this way:
In a upward market, when the
market or security trades to a higher high comparing the previous three trading
day, but it fails to hold the high and closes in the lower 10% of that day’s
trading range. Then the possibility of market reversal is high in the near
future.
On the other hand, in a downtrend
market, the market of security trades to a new low which is lower than the
three previous trading days, the market holds well and closes in the upper 10%
of that day’s trading range. Then there is a high likelihood for the market or
security to make a turn.
The key is to watch the closing
price.
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