While candlestick patterns come in all different shapes and sizes, there is perhaps none quite as unusual as the four-price doji.
In this article, I will explain how a four price doji forms, why they’re so unusual, and where you are most likely to come across them. I also suggest how they might be used as part of a broader candlestick strategy and touch on some other common doji candlestick variations.
Let’s get into it…
What is a Four Price Doji?
The four-price doji is a very uncommon candlestick pattern where the open, close, high, and low are equal (or very similar) to one another. As such, it appears as a narrow horizontal line on the chart.
It occurs when very few trades take place over the trading session, signifying extremely low trading volume. This reflects complete indecision among market participants, as neither buyers nor sellers are pushing the price in either direction.
In general, traders are torn about how to interpret a four-price doji.
Some argue that the indecision represents a potential reversal in prices, similar to a double doji. This can be either bullish or bearish depending on where the four-price doji occurs in a trend and the price action of surrounding candlesticks.
On the other hand, some traders completely avoid stocks displaying frequent four-price dojis. To them, all it shows is that the stock is extremely illiquid. Needless to say, this increases the risk of slippage when you come to sell.
However, others argue that you can completely ignore four-price dojis. The lack of trading activity means you can’t glean any useful information from them, so they shouldn’t be used as trading signals in the first place.
How to Identify a Four Price Doji Pattern
Now that we know what a four-price doji pattern is, let’s see how to find it in practice.
To make things simple, there are generally four defining features to look for:
- Shape: As mentioned, the open, close, high, and low are all the same price for a four-price doji. Therefore, it looks like a horizontal line on a chart.
- Extended trading hours: You also tend to see them in typically low volume trading hours such as the pre market and after hours. This is because very few trades take place outside of regular market hours, which increases the chance of seeing flat candles with no trading activity.
- Short time frames: In addition, four-price dojis appear more frequently on shorter time frame charts, such as 1-minute as opposed to daily. For the simple reason that prices are more likely to change over a longer period of time than a shorter period.
- Illiquid securities: They also feature prominently in illiquid securities like penny stocks, where trading volume is low anyway.
Four Price Doji Chart Examples
Now let’s apply this theory to the real-world…
This first example is of a penny stock that trades on the OTC (over-the-counter) market. As you can see, the chart is full of horizontal lines. By now, we know these as four-price dojis.
The interesting thing, is that we haven’t even had to look at extended hours price data or a short time frame chart to expose these. This is a daily chart displaying regular market hours.
What it shows is the true illiquid nature of penny stocks. In this case, the occurrence of so many four-price dojis should warrant caution, as it highlights the difficulty you would have in selling any position without moving the price against you (slippage).
This next example comes from the opposite side of the spectrum. It is one of the largest and most liquid stocks in the world, Apple.
As such, we are unlikely to find a four-price doji on a daily chart. Instead, we will have to look at a short time frame chart outside of regular market hours.
This is exactly what we see on the following 30-minute chart. Note, the white-shaded region represents regular market hours, the blue-shaded region after hours, and the beige-shaded region pre-market.
In this particular example, you can see where I have highlighted a four-price doji in the post market. Outside of this, there are no other occurrences over the selected time frame (about 3 days).
Four Price Doji Trading Strategy
As mentioned earlier, there are different theories about how useful a four-price doji is in a trading strategy.
Personally, I am in the camp that it doesn’t add much value as a single candlestick pattern. Having said that, it still potentially has use as part of a multi candlestick strategy like the morning doji star or evening doji star.
I will not go into the details of these strategies here, as I have written separate articles doing just that. Put simply though, both comprise of 3 candlesticks with a doji in the middle.
The morning doji star is a bullish reversal pattern, while the evening doji star is a bearish reversal pattern. In essence, the three candlesticks work together to give much more reliable signals about price action than any one of them could on their own.
As always though, context is important and there is usually more technical analysis that has to go into it before making any trade. Lastly, it should go without saying that risk management tools like stop-losses should be in place in case of a “false signal”.
Other Types of Doji Candlestick Patterns
It turns out that the four-price doji is just one of many doji candle variations. Below, I outline the other doji candlesticks you should be aware of.
Standard Doji
The standard doji candlestick pattern has equal-sized upper and lower shadows.
Due to its appearance of a star, a standard doji is sometimes referred to as a doji star. It is generally seen as the most neutral of all the doji candles, as the closing and opening price are equidistant from the highs and lows of the candle.
In other words, buyers and sellers were engaged in a pretty even fight throughout the day until settling back down to where they started.
Long-Legged Doji
A long-legged doji is very similar to standard doji in that the upper and lower shadows are of equal height. However, the difference is that both of these shadows are much longer than a normal doji.
Again, this is a relatively neutral candlestick, however the longer wick indicates even stronger indecision between buyers and sellers than a normal doji.
Gravestone Doji
The gravestone doji gets its name from its resemblance to an upright gravestone.
The appearance of a gravestone doji is like an inverted letter “T”, with the open, low, and closing prices all pretty much similar. This means that the body appears at the lower end of the candle with a long upper shadow above it.
A gravestone doji suggests that bulls were initially driving the price higher before bears took control again. This strong rejection of bullish price action means that a gravestone doji is usually seen as a bearish reversal signal.
Therefore, if you see a gravestone doji following an uptrend you should think about taking profits or entering a short position.
Dragonfly Doji
In contrast to the gravestone doji, which looks like an inverted “T”, the dragonfly doji looks like an upright “T”, with the high, opening, and closing prices all the same. As such, the body appears towards the upper end of the candle with a long lower shadow beneath it.
A dragonfly doji suggests that sellers were initially in control of the price before bulls stepped in to drive it higher again. The fact that bulls ended the session in the driving seat means that the dragonfly doji is usually seen as a bullish reversal signal.
Therefore, if you see a dragonfly doji after a downtrend, you should look to cover short positions or enter a long position.