It’s formed when the asset’s high, open, and close prices are the same. A gravestone doji is a bearish reversal candlestick pattern formed when the open, low, and closing prices are all near each other with a long upper shadow. A Japanese doji candlestick is an important signal for traders, especially if it forms at the high or the low of the trend in the daily timeframe. In this case, there is a high probability of a bearish reversal or a correction for the asset.

In a bearish phase, it will be a bullish reversal signal; the strength of the signal will be all the more increased as, the lower shadow will be long. Devoid of an upper shadow, this rather rare candle is composed of a long lower shadow and an opening/closing price at the highest. At closing, the security price has returned to the starting point. Buyers (bulls) were not strong enough to push the stock’s value above the opening price. The mini-Dow eventually found support at the low of the day, so much support and subsequent buying pressure, that prices were able to close the day approximately where they started the day.

The Pros and Cons of Trading the Doji Chart

Our aim is to make our content provide you with a positive ROI from the get-go, without handing over any money for another overpriced course ever again. We are sharing premium-grade trading knowledge to help you unlock your trading potential for free. Or most commonly in shorter time frames – 5 minutes to tick level time frames. This long lower wick suggests that sellers sold aggressively during the period of the candle. Since the candle closed near the open the price was able to recover and close near the high. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools.

In the case of a dragonfly doji, the opening, the high, and closing price are the same. Such a pattern can only occur when the market trades down and then reverses but does not move above the opening price. The dragonfly doji pattern doesn’t occur frequently, but when it does it is a warning sign that the trend may change direction. Following a price advance, the dragonfly’s dragonfly doji long lower shadow shows that sellers were able to take control for at least part of the period. While the price ended up closing unchanged, the increase in selling pressure during the period is a warning sign. A Dragonfly Doji is a type of candlestick pattern that can signal a potential reversal in price to the downside or upside, depending on past price action.

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It’s important to understand what this candlestick means for your trading strategy because it could be an opportunity to take advantage of the market or it may indicate that the trend has ended. When Dragonfly Doji appears on a price chart, this candle is a signal that should alert to a probable change in the trend, namely a bearish or bullish reversal. Doji patterns indicate a transition in prices or that the market is undecided about the direction prices will take. As a category, they are best described as a transitional pattern rather than a reversal or continuation pattern.

When a new trading period begins, the price rises sharply, then decreases. By the end of the period, the price returns to the starting mark or the level close to it. Dragonfly Doji candlestick is one the rarest candles on charts and if you want to remember it better, think about a “T’ Letter. Pivot Points are automatic support and resistance levels calculated using math formulas. In this case, traders may want to see if Dragonfly has any confirmation which will be seen in its next candle or candles after it occurs. When the trends are no longer close enough to graphically form a line, the candlestick is called Hammer.

Important Takeaways of the Dragonfly Doji

Graphically this translates to the long wick under the body of the candlestick. The Dragonfly Doji chart pattern is a “T”-shaped candlestick that’s created when the open, high, and closing prices are very similar. Although it is rare, the Dragonfly can also occur when these prices are all the same. The most important part of the Dragonfly Doji is the long lower shadow.

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Understanding the Dragonfly Doji

First, you determine the time frame and support/resistance levels. Below, you can see the support and resistance levels in the H4 timeframe; I also marked the local high. In the classic Doji pattern, the opening price should match the candlestick’s closing price, but there can be minor discrepancies of several ticks. Many beginner traders have come across a strange candlestick, looking like a cross with little or no body. Make sure you understand the difference between hanging man candle, hammer candle, and dragonfly doji to prevent from false interpretation. If you’re looking for a dragonfly doji confirmation, you should pay attention to its next candle.

If the candlestick right after the bullish dragonfly rises and closes at a higher price, the price reversal is confirmed, and trading decisions can be made. Alone, doji are neutral patterns that are also featured in a number of important patterns. A doji candlestick forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts. The body of a candlestick is equal to the range between the opening and closing price, while the shadows, or wicks, represent the highs and lows of the trading period.

Dragonflies that appear during uptrends will often show as a green Dragonfly and vice versa for downtrends. In Japanese, doji means “blunder” or “mistake”, referring to the rarity of having the open and close price be exactly the same. It works most efficiently in timeframes of one hour and longer, increasing the profit from one trade. In fact, Doji’s opening and closing session of the candle is almost the same. It’s better for you to looking for confirmation first and put a tight stop loss to open a trade.