Dragonfly Doji Candlestick Overview, Significance, Limitations

A dragonfly doji is considered a signal of a potential reversal in the security price. It occurs when the open, close, and high prices of a security are virtually the same. Thus, a dragonfly doji is T-shaped without an upper tail, but only a long lower tail. A gravestone doji occurs when dragonfly doji the low, open, and close prices are the same, and the candle has a long upper shadow. The gravestone looks like an upside-down “T.” The implications for the gravestone are the same as the dragonfly. Both indicate possible trend reversals but must be confirmed by the candle that follows.

Investing involves risk, including the possible loss of principal. My book,

Encyclopedia of Candlestick Charts,

pictured on the left, takes an in-depth look at candlesticks, including performance statistics. Pivot Points are automatic support and resistance levels calculated using math formulas.

What is a Marubozu candlestick pattern and how to trade it?

They look like a T with a long lower shadow and no upper wick. 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. Candlestick is a type of charting that contains the open, close, high, and low prices of an asset for a specific time period. Candlestick charts are more informative than typical line charts, which only provide the close price or average price. Thus, candlestick charts are more prevalently used in technical analysis than line charts.

• The dragonfly doji pattern doesn’t occur frequently, but when it does it is a warning sign that the trend may change direction.
• As we mentioned before, Dragonfly doji candlestick is rare on charts.
• Following the dragonfly, the price proceeds higher on the following candle, confirming the price is moving back to the upside.
• If all three conditions are met then traders who have spotted these clues may consider going long on their chosen instrument as Dragonfly Dojis often lead into strong moves upwards.

Following this price action, a dragonfly Doji print is visible right at the level of support. But the implications of said reversal depend on price action and confirmation. The long lower tail of a dragonfly doji indicates that large amounts of selling have flooded the market, which caused downward pressure on the security price during a certain period. However, at the end of that period, the close price is still able to stay at the level of the open price. It suggests that buyers in the market are able to absorb this much selling and pull back the price.

Some examples of signals Dragonflies can give during downtrends would be:

What we really care about is helping you, and seeing you succeed as a trader. We want the everyday person to get the kind of training in the stock market we would have wanted when we started out. Our watch lists and alert signals are great for your trading education and learning experience.

After a downtrend, the Dragonfly Doji can signal to traders that the downtrend could be over and that short positions could potentially be covered. On a daily bar, why does the price only reverse enough to reach the daily opening level? Likely, it is because investors are neutral, no longer believing in the downtrend that prevailed in the early trading hours but also not sure the security has any real upward potential. The dragonfly doji is used to identify possible reversals and occurs when the open and closing print of a stock’s day range is nearly identical. If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. Another popular way of trading the Dragonfly Doji candlestick pattern is using the Fibonacci retracement tool.

Learn More

They assume that it has to go up by now and that the down move was just a pullback. Every candlestick pattern tells us a unique story about how the market has moved, and how market participants have acted. Look for signs of confirmation on trend reversal then open trade and put your stop loss on near local support/resistance. Risk management for trading the dragonfly doji pattern is hard because you should consider many factors along the way.

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. To trade the Dragonfly Doji candlestick pattern it’s not enough to simply find a candle with the same shape on your charts. It’s a reversal pattern because before the Dragonfly Doji appears we want to see the price going down, thus it’s also a frequent signal of the end of a trend.

Dragonfly Doji: Understanding This Pattern

In addition to that, some parts of the day might work better with the dragonfly doji than others. It makes no difference whether the dragonfly Doji pattern is profitable; price action must be followed to determine its long-term trend. If you want to trade on the confirmation, you should try to set a tight stop loss and wait for the market to confirm. By reading the previous sections, you’ll learn how to determine a realistic profit target.

This significant and sudden change in sentiment becomes a sign that the bearish trend might have come to an end. The fact that buyers didn’t manage to push prices past the open, while sellers made the market perform a deep dip, becomes a sign that the market is hesitant about moving higher. The Doji candle has a dragonfly theme, similar to that of a Doji candle. The price fluctuates during the candle session but does not change much at the end of it. When the trend favors the Doji candle, it always indicates a risk of harm.