Understanding the Dragonfly Doji Candlestick Pattern

RISK DISCLOSURETrading forex on margin carries a high level of risk and may not be suitable for all investors. Losses can exceed deposits.Past performance is not indicative of future results. The performance quoted may be before charges, which will reduce illustrated performance.Please ensure that you fully understand the risks involved. Traders were able to push the price higher from the session low all the way back to the open price when the previous candlesticks have been bearish.

  • Dragonfly Doji candlesticks and gravestone doji candlesticks are two types of doji candlestick patterns indicate potential reversals in a price trend.
  • Traders would also take a look at other technical indicators to confirm a potential breakdown, such as the relative strength index (RSI) or the moving average convergence/divergence (MACD).
  • The filled or hollow bar created by the candlestick pattern is called the body.
  • Even in ideal circumstances, there’s no guarantee that it will appear.
  • It’s formed when the asset’s high, open, and close prices are the same.

The filled or hollow bar created by the candlestick pattern is called the body. A stock that closes higher than its opening will have a hollow candlestick. A doji (dо̄ji) is a name for a trading session in which a security has open and close levels that are virtually equal, as represented by a candle shape on a chart.

What Does a Doji Tell Investors?

Price charts are one of the most valuable tools for technical analysis. They enable traders to analyze the market and spot potential trends before they develop. Candlestick charts also allow traders to identify candle patterns, such as Dojis.

If you are new to Forex, then learning how to read a price action chart can be incredibly confusing. I am using all aspects of technical analysis and price action in my trading with a goal to help you learn to do the same. It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career. Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training.

  • In both cases, the candle following the dragonfly doji needs to confirm the direction.
  • Distinguishing between the Hanging Man and the Dragonfly Doji isn’t too tricky.
  • The dragonfly doji is a candlestick pattern stock that traders analyze as a signal that a potential reversal in a security’s price is about to occur.

We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. A Dragonfly Doji signals that the price opened at the high of the session. There was a great decline during the session, and then the price closed at the high of the session.

As a result, buyers came in at the end of the day and pushed the price back up. It’s a unique chart pattern and demonstrates a significant swing in momentum to the upside which is perfect for swing trading. This information can be golden if you are a swing trader, or looking to exit a position. The dragonfly doji is a solid trend reversal pattern that certainly should be part of your trading toolbox. The gravestone looks like an upside-down “T” and it has the same reversal properties as the dragonfly. It has an opposite look to the dragon fly pattern because it is formed when the open, close and low prices are equal and there is a long high wick.

Dragonfly Doji

The trader places a buy order at the high of the doji bar with a stop loss level below it. 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 entering short after a bearish reversal, a stop loss can be placed above the high of the dragonfly.

What is the Dragonfly Doji?

This makes it less than ideal for most traders, but understanding the sentiment behind these market occurrences can be incredibly beneficial to anyone trading financial assets. Profit margins are subjective to each trader and depend a lot on risk exposure, but anyone can profit from the dragonfly doji in the right conditions. A Dragonfly Doji is a type of single Japanese candlestick pattern formed when the high, open, and close prices are the same. When a dragon fly doji has formed in a downtrend it is regarded as a strong signal due to the swift change of power from the sellers to the buyers.

Characteristics of Dragonfly Doji Candlestick Pattern

This may be a chance for additional entry points, especially if the market has a higher open on the following day. A dragonfly doji with high volume is generally more reliable than one which forms on relatively low volume. Ideally, the confirmation candle also has a strong price move and strong volume. A doji candle chart occurs when the opening and closing prices for a security are just about identical. If this price is close to the low it is known as a “gravestone,” close to the high a “dragonfly”, and toward the middle a “long-legged” doji.

Time is also an essential factor to consider when trading the Dragonfly Doji. Higher time frames can strengthen the validity of the pattern, while lower time frames weaken its signals. 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. The dragonfly doji, like all the other candlestick patterns, should not be used in isolation.

The following graph shows a temporary bearish price reversal on Bitcoin’s daily time frame. As the chart shows, prices continued going down after the bearish Dragonfly Doji’s appearance, which appeared during a period of consolidation following a predominantly bullish move. A ‘Doji’ refers to a common candlestick chart pattern for financially traded assets whose closing and opening prices are virtually the same.

Third, you can avoid false signals by using a multi-timeframe analysis. If it forms on the one-minute chart, look at the 5 and 10-minute charts to see the overall trend. As shown above, the dragonfly pattern is characterized by a long lower shadow and no upper shadow.

After a dragonfly doji has formed, it will alert you that a change in trend is potentially about to occur. A dragonfly doji is formed when the buyers in the market have essentially managed to push the session’s candle from a session low back to the session’s open price. The body can either be filled (negative candlestick) or hollow (positive candlestick). The top of a hollow body represents the close price, as the bottom represents the open price, which indicates a price increase during that period.

Are Candlestick Patterns Reliable

Risk management for trading the Dragonfly doji pattern can be complex due to many factors. It is vital in a stock or crypto market to ensure profits do not get wiped out by losses. When trading the Dragonfly doji pattern, it is essential to look for confirmation of a trend reversal before opening a trade and placing a stop-loss order near local support/resistance levels. It works with the main purpose of depicting the equilibrium situation of supply and demand. Therefore, if you want a signal for a potential upside or downside reversal in price, Dragonfly Doji is a type of candlestick pattern you must be looking for.

The other crucial part to this candlestick pattern is the confirmation. This candlestick pattern is created with price first opening, then trading lower, followed by price pushing back higher and wiping away all of the sessions losses. We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started.