The signal is confirmed if the candle following the dragonfly rises, closing above the close of the dragonfly. The stronger the rally on the day following the bullish dragonfly, the more reliable the reversal is. The long lower shadow suggests that there was aggressive selling during the period of the candle.
Always do your own careful due diligence and research before making any trading decisions. It’s like a regular Doji but this time around, the highs and lows of the candle is very long. Whether you want to capture a swing or whether you want to capture a trend, you can use the appropriate trade management or trailing stop loss technique. You can go short on the next candle, stop loss above the swing high and depending on whether you want to take a swing or not.
What Is the Dragonfly Doji Used for?
While the price ended up closing unchanged, the increase in selling pressure during the period is a warning sign. Most of the technical indicators or patterns are indicative of reversal patterns.Hence they are neither bullish nor bearish. Also usually traders even if the pattern appears will wait for the next day to verify. The Doji candlestick pattern is characterized by its distinct “cross” shape, where the opening and closing prices of an asset are either equal or very close to each other. The Doji symbol represents a state of indecision and balance between buyers and sellers in the market. Dragonfly and gravestone doji candlesticks look incredibly similar to pin bars, you may have seen one before and assumed what you were seeing was a pin bar due to how much they look-alike.
You can see how both of these patterns are extremely similar to bullish and bearish pin bars. Dragonfly doji can also be used to confirm bullish uptrends in the following chart showing the S&P 500 SPDR (SPY) at a different point in time. In this case, traders looking for an entry point into the uptrend could have used the dragonfly doji as a confirmation that the uptrend would continue.
All about dragonfly doji & Grave stone Doji Candlestick with Easy Examples
The dragonfly doji is not a common occurrence, therefore, it is not a reliable tool for spotting most price reversals. There is no assurance the price will continue in the expected direction following the confirmation candle. Dragonfly dojis are very rare, because it is uncommon for the open, high, and close all to be exactly the same. The example below shows a dragonfly doji that occurred during a sideways correction within a longer-term uptrend. The dragonfly doji moves below the recent lows but then is quickly swept higher by the buyers. Following a price decline, the dragonfly doji shows that the sellers were present early in the period, but by the end of the session the buyers had pushed the price back to the open.
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- As a swing trader, you can look to take profit at the nearest swing high or at resistance area.
- In each case, the gravestone doji were followed by a bearish reversal, as the candlestick pattern would predict.
- It’s important to take the amount of volume into consideration, as well as look at other technical indicators that could provide additional hints.
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Limitations of Using the Dragonfly Doji
Another reason I think gravestone and dragonfly doji’s should be treated the same as bullish and bearish pin bars is because traders get trapped in losing trades on the wick of the candle. Candlestick patterns are a great decision support tool for active traders. While dragonfly and gravestone doji may not be 100% accurate on their own, they can be incredibly useful for confirming a bullish or bearish reversal that’s supported with other technical indicators or chart patterns.
Since the closing and open is the same, it also indicates that the buyers were able to absorb the selling and push the price back up again. Now, Quite the opposite to gravestone doji, since the opening and closing are close to the high of the day. The problem with dragonfly and gravestone doji candles is there is no candle body, which makes it impossible for the candle to actually close into the body of the previous candle.
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The candle following a potentially bearish dragonfly needs to confirm the reversal. The candle following must drop and close below the close of the dragonfly candle. If the price rises on the confirmation candle, the reversal signal is invalidated as the price could continue rising. So for example, if the market is in a downtrend, you can look for it to pull back to a moving average, pullback to previous support turned resistance, or whatever.
THE DRAGONFLY AND THE GRAVESTONE DOJI
TradingView is a leading charting and technical analysis platform that offers a wide range of tools for analyzing candlestick patterns, including the dragonfly doji. The Doji candlestick pattern is a valuable tool for understanding market sentiment and potential trend reversals. Whether it’s the Neutral Doji, Dragonfly Doji, or Gravestone Doji, each pattern provides unique insights into the balance of power between buyers and sellers. The Doji candlestick pattern is an essential technical analysis tool traders and investors often use to understand market sentiment. This article explores the meanings, types, and trading implications of the Doji pattern. When a pin bar forms the point where the candle opened and where it closed are always different, you see this as the body of the pin.