Long-legged doji in technical analysis is a candlestick pattern in which opening and closing prices differ slightly (almost the same), but both shadows are long . Long-legged doji indicates indecision about the future direction of the security.
The structure of the candle
The candlestick chart usually consists of two types of candlesticks: bullish and bearish. The bullish candle consists of:
- top shadow
- closing price
- opening price
- lower shadow
When the close price is below the open price, the candle is bearish. The difference between the open and close price is the body of the candle, which for convenience is displayed in different colors for bear and bullish candles.
Doji's opening price is equal to or almost equal to the closing price.
The length of the shadow
- Short upper and lower shadow suggests that most transactions were concluded at a price range between the opening price and the closing.
- Long shadows, on the contrary, indicate that trading activity took place outside the range between the open and close prices.
Characteristics of long-legged doji
A long-legged doji is formed when the opening and closing prices of a candle are equal to or nearly equal, despite a significant price movement throughout the trading day. This model signals indecision about the future direction of the trend. Long-legged doji are considered the most significant when they occur during a strong uptrend or downtrend. Such doji suggests that at the moment the market forces of supply and demand are approaching equilibrium and that a trend reversal may occur.
The difference between long-legged doji and the rickshaw man
A long-legged doji means that the candle has one or both shadows very long. The rickshaw man has body just in the middle of the candle, while the condition of long shadows is not canceled.
The rickshaw man is formed when the bulls and bears are in control of the price of the selected timeframe to the same extent. This creates a wide range of price movement over this period and therefore long shadows on the candle in both directions. Despite considerable volatility, there is no clear directional movement, and the price closes very close to the opening price, which creates a doji with a body in the middle.
Both candles are of great importance, especially if they appear on top. At the bottom of the trend, like any other doji, they are less important.
There is an exceptional candle that can also be considered one of these two, called "high wave". It is formed in the same way as a long-legged doji or the rickshaw man, but with the difference that it has a small distance between the opening and closing prices.
What distance from opening to closing can be considered acceptable? By the number of points, it is impossible to say, because it depends on the selected timeframe. The larger the time scale, the greater the price difference is allowed. You need to identify visually. As you know, "tops" are usually small in size, and their body looks like a square – this determines their height. Now, in a high wave, it's not a square, it's half or less.
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Author: Anastasiia Ilnytska