Dragonfly Doji Candlestick: What Is It and How to Trade It

Professional traders use the candlestick patterns to predict whether the price will continue moving in a certain direction or whether a reversal will happen. Having identified the pattern on the candlestick chart, it is necessary to monitor trading volumes and get confirmation of the pattern by other price formations. Once the pattern is confirmed, it is necessary to open a long or short position, placing a stop-loss order behind the „Dragonfly doji“ candlestick’s low. A „Gravestone doji“ pattern is opposite to the „Dragonfly Doji“ candlestick. A „Gravestone doji“ often occurs at the highs after a long uptrend, signaling a trend reversal to a downtrend. The „Dragonfly doji“ pattern is a Japanese candlestick pattern that is formed at the bottom of a downtrend or the top of an uptrend, signaling a trend reversal.

When Is the Best Time to Trade Using Dragonfly Doji Candlestick?

1. A long green daily candlestick may indicate that the buyers were strong that day, whereas a long red candle may indicate that sellers were strong.
2. A doji is not as significant if the market is not clearly trending, as non-trending markets are inherently indicative of indecision.
3. Its occurrence is relatively rare as it only forms under specific market conditions where the open, high, and close prices converge at the same level, creating a long lower shadow.
4. As explained above, using the dragonfly indicator blindly can lead to substantial losses.
5. A „Gravestone doji“ pattern is opposite to the „Dragonfly Doji“ candlestick.
6. A doji occurs when the open and close prices are nearly the same or equal, resulting in a small real body or no real body at all.

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. Strike offers a free trial along with a subscription to help traders and investors make better decisions in the stock market. A Dragonfly Doji occurs when the buyers in the market have successfully pushed the session’s candle from the session’s low, back to the session’s open price. Dragonfly Doji candlestick arises when a security’s open, close, and high prices are practically identical. A Dragonfly Doji is therefore T-shaped and has only a long lower tail instead of an upper tail. Spinning tops appear similarly to doji, where the open and close are relatively close to one another, but with larger bodies.

1. The confirmation candle must also show a strong price movement and volume.
2. This divergence suggests that while the price is making new lows, the underlying momentum is weakening, potentially leading to a price reversal.
3. However, dragonfly doji used with other technical indicators may help predict accurate results.
4. The pattern typically indicates indecision in the market, and it can have several benefits for traders as it helps traders to make trading decisions and acts as a reversal signal.
5. The dragonfly doji and doji star are a subcategoary of the doji candlestick patterns.
6. A candlestick consists of two parts – “the body” and the “tails.” The top of the upper tail tells the highest price that the asset has ever been traded at during a certain period of time.

They are shaped like a T and signal a potential reversal to a new uptrend. When the market has been in an uptrend, i.e., prices are increasing until a point of resistance, a dragonfly doji candlestick forms at the top of dragonfly doji meaning the chart. A single dragonfly doji candlestick is not enough to confirm any trend or reversal. The traders must wait for the next candle to see if prices are moving as expected and then take necessary positions. A „Dragonfly doji“ is a Japanese candlestick pattern that signals a potential trend reversal.

A green confirmation candle signifies an uptrend whereas, a red confirmation candle denotes a downtrend. 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.

Trading at the Bottom of a Downtrend

This protects against downside risk and helps to control potential losses if the price moves against the trade. On the flip side, if you’re an intermediate-term or swing trader, you might look for dragonfly doji patterns on 4-hourly and daily charts. These longer timeframes can provide a balance between short-term noise and long-term trends, giving you a broader view of the market. Before the formation of the „Dragonfly doji“ pattern, one can identify a downtrend on the price chart.

Hence, it requires immense practice and understanding of this concept in order to make decisions on this basis. Upon the formation of the dragonfly doji, the prices are rising as expected. The Four Price Doji is a rare and unique Doji pattern where the open, high, low, and close are all the same. This pattern represents extreme indecision and is often considered a market anomaly.

While a dragonfly doji pattern can be a reliable indicator of potential market reversals, it is most effective when confirmed by other technical indicators or price action signals. Like most form of technical analysis, there’s always a chance a pattern does not fully indicate what is to come. They mostly occur over one period and can therefore only indicate what the price may do in the short-term, rather than helping to signal long-term changes in trends.

What is an example of a Dragonfly Doji Candlestick used in Trading?

The Dragonfly Doji pattern is a reliable indicator of a potential trend reversal. However, traders should wait for confirmation before entering a trade. Moreover, traders should always use stop-loss orders to minimize potential losses. The Dragonfly Doji candlestick pattern is formed when the opening and closing prices are the same or very close. It is important to note that the pattern can also form with a small upper wick.

A classic pattern has the same opening and closing price with no upper candlestick shadow (wick), but there may be a slight difference between the prices. When it forms at the bottom of a downtrend, the dragonfly doji is considered a reliable indication of a trend reversal. This is because the price hit a support level during the trading day, hinting that sellers no longer outnumber buyers in the market. If the security is considered to be oversold, which may require the assistance of additional technical indicators, a bull movement may follow in the days ahead.

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. The information on market-bulls.com is provided for general information purposes only. Market-bulls.com does not accept responsibility for any loss or damage arising from reliance on the site’s content. Users should seek independent advice and information before making financial decisions. Following these general procedures, traders can earn from trading the Dragonfly Doji candle in any financial market.