The low close doji pattern is a two-bar candlestick pattern. In this pattern, the first day is a doji and on the second day the price closes lower than the lowest low that the stock traded at on the day the doji was registered. This suggests that after a day of indecision (the doji), the market decided to sell off the stock. This could be a sign of things to come.
Generally speaking this is a bearish sign, and this pattern usually signifies the start of a new downtrend at the end of an uptrend or after a period of sideways movement. If this pattern is created within an already established downtrend, it is natural to question how much further the stock has room to fall.
The significance of this pattern is confirmed if on the day following the low close doji pattern the next candlestick closes lower yet again, suggesting that the downwards momentum is building up.
A low close doji that meets these criteria is a potential short candidate and warrants attention.
Here is an historic example of a low close doji pattern and the implications that this chart pattern had in the future price movements of the stock:
Example: Netflix (NFLX)
On July 28th, 2011, a low close doji pattern is shown in the following chart. July 27th was a doji, and on July 28th the stock price opened lower and reached the midpoint of the doji at it’s high of the day. It then sold off and closed near the lows of the day. This suggests that sellers were selling into that day’s rally, or in other words there was resistance for the stock to move any higher. It then moved lower and on the following day, the stock moved lower yet again. The signal was confirmed on July 29th as the price closed lower than it did on July 28th.
As you can see in the following 2-year chart, this signal was just the beginning of a new downtrend. After an amazing uptrend, the stock had started to move sideways and was ripe for a sell-off. The low close doji was the last to get out at top dollar. The stock price fell nearly an unprecedented 75% over the next four months.