The Doji Sandwich

Some active investors start their trading day with this breakfast of trading champions

By Stephen W. Bigalow

Candlestick trading signals and patterns are based on an infinitely valuable commodity—human nature. Think of them as the graphic depiction of every buying and selling decision investors made during a specific time frame.

They’re as effective on a one-minute chart as on a monthly chart. They produce a powerful trade setup strategy for active investors who want fast and accurate results.

The doji, one of the most-recognized candlestick signals, is produced when prices open and close at approximately the same level during a particular period. This signal underscores the indecision between the bulls and the bears and produces extremely powerful price move expectations.

The doji rule states that a price usually moves in the direction of the opening price after a doji. That produces the high-probability trade setup called the doji sandwich.

Many consider the doji sandwich signal an indication of the high probability of a positive trade. The Gibraltar Industries (ROCK) chart shows how to recognize this strong day-trade setup.

Note that Day 1 produces a strong bullish candle. (This analysis is relevant on a one-minute chart, 10-minute chart or hourly chart.) The positive trading, Day 2 of a doji, would confirm the bullish trend but not with any decisiveness. Simple candlestick scanning techniques enable investors to identify the trade setup.

On a positive open, the candle after the doji is usually of the same magnitude as the candle before it. This price movement suggests day traders should enter the trade immediately to maximize profit potential.

Stephen W. Bigalow, a veteran of 45 years of trading, directs a candlestick analysis learning forum at candlestickforum.com.