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As mentioned above, the other two types of doji patterns are the gravestone doji and the long-legged doji. The gravestone doji is in the reversed shape of the dragonfly. The low, open, and close prices of a gravestone doji are at the same level. Same as the dragonfly, the gravestone doji also indicates potential price reversals and requires confirmation candlesticks. However, Dragonflies appearing in downtrends can also show potential reversal signals although these are less than those seen during uptrends. Dragonflies during downtrends will often be red and show as a warning sign of an impending trend change which can lead to strong bearish price action.

Lawrence Pines is a Princeton University graduate with more than 25 years of experience as an equity and foreign exchange options trader for multinational banks and proprietary trading groups. Mr. Pines has traded on the NYSE, CBOE and Pacific Stock Exchange. In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives. Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

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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 dragonfly doji 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.

• The price rolls back to the opening level by the end of a trading period.
• This long lower wick suggests that sellers sold aggressively during the period of the candle.
• In the second example, a bearish dragonfly doji candlestick on a daily timeframe formed below support line and couldn’t cause the price to retraces.
• 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.
• 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 a solid trend reversal pattern that certainly should be part of your trading toolbox. Before taking action, you must wait for the strong signal and consider other indicators. This very particular Japanese candlestick is composed of a long lower shadow which reflects the bearish reversal action of sellers (bears) at the start of the session. When the trading session begins, the sellers (bears) aggressively push the price down. Graphically this translates to the long wick under the body of the candlestick. As a bullish reversal pattern, the Dragonfly Doji is a great pattern to watch for when the price is on an uptrend.

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In the classic Doji pattern, the opening price should match the candlestick’s closing price, but there can be minor discrepancies of several ticks. The content on this website is provided for informational purposes only and is not intended to constitute professional financial advice. Trading any financial instrument involves a significant risk of loss. Tradingindepth.com is not liable for any damages arising out of the use of its contents. When evaluating online brokers, always consult the broker’s website.

As the name suggests, a gravestone doji is an ominous sign that the current trend is being exhausted and is about to reverse. 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. On the second example, we see the USD/ZAR pair in also a minor downward trend. The fourth one opened slightly below where the third one closed, fell sharply, and then closed near where it opened. In most cases, the length of the lower shadow is used as an indication of the strength of an upcoming reversal pattern.

Dragonfly Doji Candlestick Chart Trading Tutorial and Example

Dragonfly doji have no upper shadow and a long lower shadow, which suggests that bulls regained control over the price after strong selling pressure. When they occur after a downtrend, these candlestick patterns can predict a bullish reversal, especially if they occur on higher than average volume. Dragonfly doji candlesticks are reversal candlesticks found at the bottom of downtrends. They are shaped like a T and signal a potential reversal to a new uptrend. First, you determine the timeframe, support, and resistance levels. In the next step, in particular, after determining the downward trend line, you can analyze the candlestick chart.

In this article we will dive into how to spot a dragonfly doji. The best strategy to trade it and examples of how they have played out in the past. The bearish version of the Dragonfly Doji is the Gravestone Doji. It looks like an upside-down version of the Dragonfly and it can signal a possible downtrend. Or most commonly in shorter time frames – 5 minutes to tick level time frames. Both of these patterns indicate a potential reversal imminently.

Dragonfly Doji Pattern – What is it?

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. It is important to remember that candlestick patterns are a representation of market psychology so let’s break down what goes on behind the scenes when we see a dragonfly doji print on our charts. The dragonfly doji candle is a bullish trend reversal price formation that is part of the doji family. Estimating the potential reward of a dragonfly trade can also be difficult since candlestick patterns don’t typically provide price targets.

For example, you can use indicators like the Average True Range (ATR) and double moving averages. As we mentioned before, Dragonfly doji candlestick is rare on charts. In the first example, a bullish dragonfly doji candle on a daily timeframe showed a temporary price retracement then price continued to go down. TradingView’s user-friendly interface and interactive charts make it an excellent choice for both beginners and experienced traders. 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.

There is that long tail, though, so sellers are also abundant. They are much harder to find but are reliable reversal signs within a defined trend. Another popular way of trading the Dragonfly Doji candlestick pattern is using the Fibonacci retracement tool. The Dragonfly Doji candlestick pattern is formed by one single candle.