Don't Ignore This Chart!

Anatomy of a Doji (STAA)

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Ditc20090209-1


STAA put in a huge Doji on its daily chart today.  Technically, a doji is a candlestick where the open and the close are the same.  The huge upper shadow and relatively small lower candle makes STAA's Doji especially striking.  It is very close to being a "Gravestone Doji" - a doji with a big upper shadow and no lower shadow.

Doji's often signal a reversal.  We can see the reason for that by looking at the 10-min intraday chart for STAA:

Ditc20090209-2

STAA gapped up on the open and then quickly rose to its high for the day (2.74).  It then spent the rest of the day slumping back to its opening price.   By 3:30, it had moved below the open to the low of the day - 2.00.  A late day buy order brought prices back up the opening level - 2.04.

As we can see on the intraday chart, the quick move up followed by a lack of follow thru had two consequences - 1.) it probably depressed the STAA bulls and 2.) it created the big doji on the daily chart.  Which is why dojis often indicate reversals.

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More
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