What Is a Doji Candle Pattern, and What Does It Tell You?

dragonfly doji candlestick meaning

Doji and spinning top candles are commonly seen as part of larger patterns, such as the star formations by technical analysts. A spinning top also signals weakness in the current trend, but not necessarily a reversal. A question may arise, why the price reversed to reach to its opening by day end? They couldn’t confirm that the downtrend at the early trading hours will continue but also couldn’t prove that the stock has any upward potential.

dragonfly doji candlestick meaning

Ideally, the confirmation candle also has a strong price move and strong volume. If dragonfly doji candle forms when the price is reaching a resistance, it shows temporary price reversal, but you should follow further price action to confirm it. 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. This indicates increased buying pressure during a downtrend and could signal a price move higher. When the price of a security has shown a downward trend, it might signal an upcoming price increase. If the candlestick right after the bullish dragonfly rises and closes at a higher price, the price reversal is confirmed, and trading decisions can be made.

What is the difference between dragonfly doji and hammer candle?

As mentioned, this candlestick will form when the opening and closing prices are almost balanced for a certain period. Although a doji can indicate that a reversal of price direction is in progress, it can also be a continuation pattern where prices hover at their current value. The Gravestone doji and the Dragonfly doji are stronger indicators of price reversal than a standard doji. As a bullish reversal pattern, the Dragonfly Doji is a great pattern to watch for when the price is on an uptrend.

Key takeaways A morning star pattern is a bullish 3-bar reversal candlestick patternIt starts with a tall red candle,… The dragonfly doji is a quite dramatic pattern, involving quick and sudden shifts from buying to selling pressure. The trend strength, which in some form is a sign of the conviction of a market, is often of great help to determine the validity and accuracy of a pattern, like a dragonfly doji. The size of the dragonfly coupled with the size of the confirmation candle can sometimes mean the entry point for a trade is a long way from the stop loss location. In addition, the dragonfly doji might appear in the context of a larger chart pattern, such as the end of a head and shoulders pattern.

What Does a Dragonfly Doji Candlestick Tell?

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. Investors looking for possible entry in the market it becomes crucial to confirm the trend. Most traders enter the market during the formation of the second candle or shortly after its completion. It is an indication that bearish trends have been strong and fished for the bottom and found it. There is a price support level and also a reversal buying trend which has pushed the price back up to remain close to the opening price.

  • Everyone is equally matched, so the price goes nowhere; buyers and sellers are in a standoff.
  • From mid-morning until late-afternoon, General Electric sold off, but by the end of the day, bulls pushed GE back to the opening price of the day.
  • But, if you take it into context with the earlier price action, you’ll have a sense of what the market is likely to do with the doji pattern.
  • As mentioned above, the other two types of doji patterns are the gravestone doji and the long-legged doji.
  • Applying a stop-loss policy while planning a trading strategy around Dragonfly Doji can help you beat the odds.

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. While a doji with an equal open and close would be considered more robust, it is more important to capture the essence of the dragonfly doji candlestick. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session, but close at or near the opening level. Neither bulls nor bears were able to gain control and a turning point could be developing.

How Do Traders Interpret a Dragonfly Doji Pattern?

From mid-morning until late-afternoon, General Electric sold off, but by the end of the day, bulls pushed GE back to the opening price of the day. After a long downtrend, like the one shown in Chart 1 above of General Electric stock, reducing one’s position size or exiting completely could be an intelligent move. The Dragonfly Doji pattern is also a mirrored version of the Gravestone Doji candlestick pattern.

dragonfly doji candlestick meaning

In both cases, the candle following the dragonfly doji needs to confirm the direction. Estimating the potential reward of a doji-informed trade also can be difficult because candlestick patterns don’t typically provide price targets. Other techniques, such as other candlestick patterns, indicators, or strategies, are required to exit the trade, when and if profitable. Every candlestick pattern has four sets of data that help to define its shape.

Where Can I Trade?

It’s better for you to looking for confirmation first and put a tight stop loss to open a trade. So, look for a buildup to form (as an entry trigger) and trade the breakout. If the price has tested the highs/lows (of the Long-Legged Doji) multiple times, then it’s likely to break out.

After a long decline or long black candlestick, a spinning top indicates weakness among the bears and a potential change or interruption in trend. A dragonfly doji candlestick is a candlestick pattern with the open, close, and high prices of an asset at the same level. It is used as a technical indicator that signals a potential reversal of the asset’s price. The Hanging Man is a bearish reversal pattern that can also mark a top or resistance level. Forming after an advance, a Hanging Man signals that selling pressure is starting to increase.