A 'doji' is formed when the index opens and then closes approximately around the same level but remain volatile throughout the trading session which is indicated by its long shadow on either side. It appears like a cross or a plus sign.
The Nifty continued its losing streak for the third consecutive day in a row on Monday, but managed to bounce back to close near its opening level making a ‘doji’ kind of pattern on the daily candlestick charts.
The Nifty opened at 9,144.75 and closed at the similar level at 9,139.30 thus forming a 'doji' pattern on Monday. It rose to its intraday high of 9,160 which made a small upper shadow and fell to an intraday low of 9,120.25 which made a long lower shadow.
“The Nifty index continued its losing streak for the third consecutive session and corrected towards 9,120. It recovered well from lower levels and formed a Doji candle on the daily chart as closed near to its opening levels,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.com.
“The index has to cross and hold above 9,165 to witness an up move towards 9,218 and 9,250 while on the downside supports are seen at 9,090 and 9,050 levels,” said Taparia.
Although 'Doji' is a neutral chart pattern and often signals indecisiveness among bulls as well as bears, but it could be a precursor to the corrective or consolidation phase for the next couple of trading sessions.
The trend will turn on the upside if Nifty decisively closes above its 20-days exponential moving average (DEMA) placed at 9,157.28. On the other hand, any selloff below 9,120 levels shall see the indices heading towards its critical support levels placed around 9,000.
Occurrence of Doji after the recent profit booking indicates that follow-up selling is missing and decline is being bought in the market. The index witnessed Doji kind of indecisive formation after witnessing relentless selling from the top of 9,274 in the last 6 trading sessions.
“This indecisive formation doesn’t suggest any meaningful bottoming out process, as the selling got arrested atleast for the day, but can raise hopes of bottoming out process if any follow through buying pushes the indices beyond 9202 levels on closing basis,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.com.
“On the other hand, any selloff below 9,120 levels shall see the indices heading towards its critical support levels placed around 9,000. We recommend traders to wait for confirmation of strength rather than jumping into the bogey and create long positions in haste,” he said.