The Magic of the Doji

Hi Shoppers,

In my last column, I showed you why I thought Amazon (Ticker: AMZN) could trade lower …

Even though at the time of writing on Tuesday night, it was trading up $38 after hours.

But I trusted my analysis — that a doji candlestick at the top of an upward trend (or the bottom of a downward trend) can detect a change in the trend.

“This doji could be signaling a pull back in the price of AMZN,” I wrote.

However, by Wednesday morning, even the Option Pit Pro Chat Room was talking about how AMZN was trading up $70 before the opening.

Also, every news story out there that talked about Bezos stepping down didn’t even mention how his company stole $62 million worth of drivers’ tips!!!  

All they did was glorify the guy! (Money isn’t everything, people. GRRRRRR!)

Anyway, AMZN proceeded to open up $20.

It was looking less like doji and more like d’oh-ji.

And then guess what …

AMZN traded DOWN!

Down $67 on the day!

And I saw it coming thanks to the magic of the doji.

The Magic of the Doji

The doji candlestick shows us the human sentiment of all buyers and sellers participating in the market.

AMZN closed at $3380 on Tuesday and traded down to low of $3277 on Thursday, down over $100!

That provides a ton of opportunities!

For instance, I mentioned a put butterfly to the Pro Trader group …that would be buying one 3300 put, selling two 3200 puts and buying one 3100 put. 

Being long a butterfly, you want the underlying to trade down to the strike you are short (the body). In this case, the 3200’s.

I was looking at the Feb19 3300/3200/3100 for $14 and it proceeded up to $27 on Friday — that’s up 92%.

Doji Lowdown

Remember what the doji looks like — the two candles on the left in the chart below …

A doji has very little or no body, meaning the opening price and closing price are the same or very nearly the same price.

It also has long upper and lower shadows.

This candle is created when buyers and sellers have balanced each other out. Neither side has prevailed, which signals a change in trend.

Doji need to appear at the top of an uptrend or the bottom of a downtrend to have any meaning.

Generally, it is a good idea to wait until the opening of the following interval for confirmation of a trend change.

In this case we are looking for it open lower than the close, for a confirmation of a reversal of the uptrend.

Gotta love those Japanese candlesticks!  

Stick with me and I will teach you more!

Thanks for Reading … See You Next Tuesday!

Licia Leslie

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