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:
- 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.
- 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.
- 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.
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 Candlestick Pattern Backtest
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To backtest candlestick patterns, you need to set specific rules and definitions. That requires both time and effort, but don’t worry: it’s already done for you!