Dragonfly Doji Candlestick Pattern: Full Guide

As a category, they are best described as a transitional pattern rather than a reversal or continuation pattern. Specific types of Doji patterns – like the Dragonfly or the Gravestone – can signal a possible reversal in prices but are best used in conjunction with other indicators. The dragonfly doji is not a common occurrence, therefore, it is not a reliable tool for spotting most price reversals.

It is essential to stay on top of all candlestick patterns to identify actual reversal trends in the market. The red or green dragonfly doji is a candlestick pattern that forms when the opening, closing, and high prices of an asset are equal or almost equal. This pattern resembles the shape of a dragonfly with an extended lower shadow. It provides bullish signals and is considered a neutral continuation or reversal pattern, depending on its context within a trend. The meaning of a dragonfly doji is that there is uncertainty in the market, and traders are prompted to carefully analyse other factors before making trading decisions.

Conversely, if it forms at a key resistance level, it could be giving a sign of a bullish continuation move in the instrument. To identify a Dragonfly Doji, look for a candlestick with a long lower shadow, little to no upper shadow, and a small body near the top of the price range. The absence of an upper shadow or a very small one confirms buyer strength, as prices were pushed up to the session’s high without encountering resistance. The color of the Dragonfly Doji (green or red) provides further insight into market sentiment. But the implications of said reversal depend on price action and confirmation. As mentioned above, the dragonfly doji candlestick happens when an asset opens, then dips, and closes at the same opening price.

Dragonfly vs. Hanging Man vs. Hammer

The Dragonfly Doji is a candlestick pattern that can signal a potential trend reversal. The Dragonfly pattern typically forms when the asset’s high, open, and close prices are the same. 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. In the case of a dragonfly doji, the opening, the high, and closing price are the same.

In the past, we have looked at several of these patterns, including evening and morning star,  the hammer. And the gravestone Doji, which is one of the three popular Doji patterns. Typically, Dragonfly Dojis appear at either the bottom of a downtrend or the top of an uptrend. 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.

Limitations of the Dragonfly Doji

We realize that everyone was once a new trader and needs help along the way on their trading journey and that’s what we’re here for. What makes a pattern valid is not just the shape, but also the location where it appears. The candle may or not have a wick at the top, but if it has, must be small. As you might have guessed from their opposing structures, Dragonfly and Gravestone Doji also have opposing implications. To remember which is which, think about how dragonflies fly while gravestones remain anchored to the ground.

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. Traders typically enter trades during or shortly after the confirmation candle completes. If entering long on a bullish reversal, a stop loss can be placed below the low of the dragonfly. If enter short after a bearish reversal, a stop loss can be placed above the high of the dragonfly.

Strategy 6: Trading The Dragonfly Doji With Pivot Points

Following this price action, a dragonfly Doji print is visible right at the level of support. Ideally, to increase the accuracy, we want to trade the dragonfly doji candlestick pattern by combining it with other types of technical analysis or indicators. Doji are trend reversal indicators, especially if they appear after an upward or downward trend. A basic Doji signifies indecision, but Dragonfly and Gravestone Doji have bearish and bullish implications.

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 candlestick pattern is a very difficult one to trade which often leads many traders down the wrong path. The dragonfly doji at the top of a bullish trend is generally seen as a continuation pattern.

When you see a Dragonfly Doji form after a series of downward price movements, it could be a sign that the trend is about to reverse. In this case, you may want to consider going long or closing out any short positions you have. The first step in developing a strategy with the Dragonfly Doji is to identify it correctly. Once you have done that, you can use it in conjunction with other analysis tools to determine the best entry and exit points for your trades.

Developing a Trading Strategy with the Dragonfly Doji

Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts. In Japanese, doji means “blunder” or “mistake”, referring to the rarity of having the open and close price be exactly the same. Spinning tops appear similarly to doji, where the open and close are relatively close to one another, but with larger bodies.

• When the market has recently been under pressure, this indicator is most reliable.
• Many traders use the Dragonfly Doji as an official warning signal of reversal in your trading strategy, so you want to act on it quickly before the trend resumes.
• When it happens in an uptrend, it is usually a sign that the asset will reverse downwards and vice versa.
• Pending orders refer to those that direct a broker to buy or sell an asset at a certain price.
• The Dragonfly Doji’s long lower shadow and minimal upper shadow indicate buyers successfully pushed prices back to the opening price despite initial selling pressure.

The dragonfly doji rarely occurs, but price reversal happens constantly. Thus, the dragonfly doji is not a highly reliable indicator of price reversals. Even with the confirmation https://g-markets.net/ candlestick, it is not guaranteed that the price will continue the trend. Typically, a dragonfly doji with a higher volume is more reliable than one with a lower volume.

People come here to learn, hang out, practice, trade stocks, and more. Our trade rooms are a great place to get live group mentoring and training. A tiny difference between the opening and closing is accepted (please check The Problem with Doji Candles for more details). Dragonfly Dojis tend to occur when the price of an asset experiences a sudden shift. Bullish Dragonfly Dojis suggests buyers have taken control, and the asset is set to experience further bullish price action. The shape is the direct result of the opening of a trading day at a downtrend.

This pattern, like many others, falls into the market reversal category, a subset of the Doji family. When the market has recently been under pressure, this indicator is most reliable. A Gravestone Doji, on the other hand, conveys that the price opened at the low of the time period. There was a great rally during the session, and then the price closed at the low of the session. Thus, the open, low, and close are all the same (or about the same) price.

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Traders shoud follow their trading plan and risk management at all time. The price wasn’t dropping aggressively coming into the dragonfly, but the price still dropped and then was pushed back higher, confirming the price was likely to continue higher. Looking at the overall context, the dragonfly pattern and the confirmation candle signaled that the short-term correction was over and the uptrend was resuming. Because the Doji family is almost entirely composed of the dragonfly Doji pattern, paying close attention to one on your chart is the most important thing you can do.

This pattern can be seen in various financial markets such as stocks, indexes, or commodities. This candlestick pattern is a powerful tool that can be used by traders to identify potential trend reversals in the market. This pattern is characterized by a long lower shadow and no upper shadow, indicating that buyers have stepped in to push the price back up from its lowest point. As a bullish reversal signal, the dragonfly doji can be used on its own or in conjunction with other analysis tools to develop a more comprehensive trading strategy.