In Japanese candlestick charting, a Doji is the name of a neutral candlestick pattern that occurs when the opening price and closing price are almost identical.
What this essentially means is that regardless of whatever price action took place within that period, buyers and sellers failed to move the price above or below the level that the candle opened at.
Because buyers and sellers have to be almost equally matched for a Doji to form, it‘s primarily regarded as a pattern that signals an imminent reversal, particularly in trending markets.
This is because buyers are abundant in an upward trending market and a shortage of sellers.
In a downward trending market, there is an abundance of sellers and a shortage of buyers. In either of these scenarios, the formation of Doji signals that the market is levelling out in terms of buyers and sellers, leading to a reversal of the previous trend.
Dojis come in various forms depending on the length of their top and bottom wicks, each signalling a slightly different state of affairs.