This lesson we will continue with basic
Once we complete our overview of the basic
candles, we will group them in patterns.
They will be identified as single candle
patterns, two candle patterns, and three
candle patterns. In each of these groups,
we will further identify bullish and bearish
candles and their meaning.
One of the most popular candles, the doji
is shaped like a cross. This means it has a
shadow but no real body (or very little).
The picture of a doji tells us by simply
looking at it that the struggle between the
bulls and bears (or supply and demand)
is an equal struggle, and there is no winner
once the candle has completed.
Because a doji is considered a non-decisive
candle, it should be viewed as a possible
reversal point, especially when it appears
in either an overbought or oversold position
on a chart. The next candle in the sequence
should be carefully watched to see if the
reversal continues. The doji pictured
represents a textbook doji with no body.
There are some doji candles that will
display a very small body, and while they
are classified as doji candles, they do have
a story to tell. We will look at these later
in this lesson. In all, there are actually five
different doji candles.
LONG LEGGED DOJI
Taking the doji candle a step further, we
realize that there is more of a story to the
doji than just a case of the opening and
closing being the same. Doji candles come
with both long and short shadows, which
can signal the power struggle that was
evident while the candle was being formed.
The doji with a long shadow appearing at
the top of a move indicates that the bulls
tried unsuccessfully to drive prices higher
into new high territory but failed to sustain
the move. This is a signal that the resistance
was met with much selling, and a possible
top is imminent. Likewise, if the long shadow
doji appears at the bottom of a move, it
tells me that the bears tried to push prices
well into new low territory but the result
was strong buying coming in to offset the
sellers. Again, this would be a potential sign
that a reversal is looming. Either way, the doji
is doing its job by warning the analyst that
caution should be taken, and that a reversal
is very possible in the next few sessions.
Notice the long legged doji candles pictured;
in each case, there was a minor difference
in the close of each. The first image is a
textbook doji with the same opening and
ONTARIO GRAIN FARMER
a traditional Japanese chart which consists of a real body, representing the open
and close, and upper and lower shadows, representing the high and low of the day.
forms when a candle’s open and close are virtually equal. The length of the upper and lower shadows
can vary, and the resulting candlestick looks like either a cross, inverted cross, or plus sign. Doji convey
a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening
level during the session, but close at or near the opening level.
closing price. The black or solid candle
beside it is also a long legged doji, but the
solid colour suggests that it closed lower
than it opened (although by a very small
margin). The third image is also a long
legged doji, but in this case the closing was
ever so slightly higher than the opening.
Although they can all be classified as
textbook doji candles, the candles on the
right show that the close and open were
not identical. This may also have some
impact on the outcome of the next series
In our next lesson, we will discuss the other
three doji candles and their meaning and
This monthly educational series features the basic workings of the futures and options
markets and how they can be utilized to help farmers with risk management.
Grain Farmers of Ontario
Futures trading basics
LESSON 33: TECHNICAL ANALYSIS
Marty Hibbs is a 25 year veteran futures trader, analyst, and
portfolio manager. Hibbs was a regular guest analyst on BNN
for four years. He is currently a grain merchandiser with
Grain Farmers of Ontario.
DISCLAIMER: This information has been compiled from sources
believed to be reliable, but no representation or warranty,
express or implied, is made by the author, by Grain Farmers of
Ontario, or by any other person as to its accuracy, completeness
or correctness and Grain Farmers of Ontario accepts no
liability whatsoever for any loss arising from any use of same.
LEFT: DOJI. RIGHT: LONG LEGGED DOJI.