I want to ask that if the doji formation in the monthly sensex chart and closing of the next candle below the low of doji a confirmation of the downtrend to be started for some more months to come. What are the possible levels to watch out for?
This is thought provoking question.
I track the Nifty so I will discuss the DOJI made on the monthly chart. (Same as the Sensex). Here is the chart:
A DOJI is a sign of uncertaintly. When it comes at the top of a trend, the message is that the rally is coming in question. A correction may come in. The DOJI is confirmed when the next bar goes lower than the low of the DOJI. A DOJI made in October was confirmed on the downside when prices moved, then closed below its low. But, what happens if the trend suddenly changes? This did happen to the DOJI made in April 2010 (marked on the chart). A stoploss is therefore placed above the high of the DOJI bar.
In the current context, roughly, a close above 6300 will cancel out the bearish implications of the DOJI. Till then, we are in a correction of some kind.