- A doji is a candle or a price stick (bar) where the opening and closing price are at the same price level.
- The doji primarily signals indecision or a pause in the price movement.
- The doji usually occurs in consolidations or sideways movements, but also at the end of price movements that have lasted for several periods of time.
- Currently, a perfect doji has developed on the Nasdaq 100 E-mini Future on the weekly chart.
The Nasdaq future has made a three-week rally (price increase) from the October low at 3,684 to the current November high at 4,179.55.
In the weekly chart shown, an almost perfect doji has now formed, indicating a week opening at 4,150.25 and a week closing at 4,150.75.
The doji in the weekly chart is due to the fact that the daily chart of the Nasdaq Future has gone sideways for the last 5 trading days, as we can see in the next chart.
The forces of buyers and sellers are roughly balanced.
A market reversal may be developing now.
The Doji Candlestick Implication
The following points from the context of the whole chart picture must be considered:
The Nasdaq future has hit a new high for the year in the last two weeks.
However, the upward movement of the last three weeks is now losing strength and a doji is forming.
This doji has opening and closing prices at the same price level and indicates reduced buying pressure.
Trading volumes have gradually decreased over the last three weeks, as can be seen in the weekly chart of the Nasdaq future shown here.
Trading turnover in the “doji week” is only average with 1.21 million contracts traded.
From a price action perspective, the Nasdaq future is in a clear upward trend, and prices can be expected to continue rising in the longer term.
But a one-, two- or three-week price correction may well be imminent now, as all buyers (bulls) are in the market.
These are the market participants who have driven the Nasdaq future up in the last three weeks.
And these are the market participants who bought when the Nasdaq future was able to pass the September high.
There should now be renewed strong follow-up buying to push the market further upwards.
But before that there will probably be profit taking, which will create a price correction, which is now being signalled by the doji.
The Doji as a signal candle
The scenario of an imminent price correction on the Nasdaq 100 Future that I have described would receive the first confirmation when the price falls below the low of the doji candle at 4,119.75 in the coming week.
However, should the Nasdaq future first breach the doji high at 4,179.75 in the coming week, we will have to reorient ourselves.
I would then write a new article about this here in the blog.
In the next few days, we will be observing the development of the Nasdaq future, and I will then comment on the development here with an update.
Update on 2014-11-29:
As I wrote above, the low of the doji candle at 4,119.75 would have been the trigger for the scenario of a correction in the uptrend I described.
Since this low was not fallen below, the scenario did not receive any confirmation.
On the contrary: The uptrend was then confirmed when the high of the doji-candle at 4,179.75 was exceeded.