Dragonfly Doji Candlestick Meaning, Examples

A Dragonfly Doji, after a price drop, warns that the price may rise. The rise of the succeeding candle provides the required confirmation for a price rise. Contracts for difference are popular assets for traders globally as they provide a way to access a wide variety of financial markets. As well as being a trader, Milan writes daily analysis for the Axi community, using his extensive knowledge of financial markets to provide unique insights and commentary. Various indicators can be used in conjunction with the dragonfly doji, with the most popular being the RSI, MACD and moving averages.

Dragonfly Doji Candlestick

In such cases, a single trader or group of traders may be able to manipulate the price, leading to false signals. The dragonfly doji can be a powerful tool for traders and investors to develop trading strategies. In this section, we will discuss some common trading strategies that use thepattern. The pattern can signal both the impending growth and the imminent fall of the asset price.

The «Dragonfly doji» candlestick is a highly efficient and strong harbinger of a price reversal. However, like other patterns, it should be confirmed by other patterns and indicators. The accuracy of the «Dragonfly doji» candlestick depends on market conditions and its position on the chart. The pattern gives a stronger reversal signal when emerging in the area of support/resistance levels. A «Dragonfly doji» is a candlestick analysis pattern, which signals a trend reversal in the market, warning traders about the weakening potential of one side of the market participants. The pattern is popular due to its belonging to the large «Doji» pattern family.

This shift can indicate a possible bullish reversal, which is especially noteworthy when it occurs at the bottom of a downtrend. The dragonfly doji and the gravestone doji are similar Japanese candlestick patterns but shaped in the opposite direction. Both patterns are similar to pin bars in their construction and the market indicators they provide. However, the primary difference between these two patterns lies in the position of the long shadow. The dragonfly doji has a long lower shadow, indicating a potential bullish trend reversal. In contrast, the gravestone doji has a long upper shadow, suggesting a potential bearish reversal.

The reversal signal is void if the price increases on the confirmation candle since the price may continue to rise. The long lower shadow indicates that there was some assertive selling during the timeframe of the candle. As the price closes near the open, the buyers absorb the selling pressure and push the prices back up. Once the confirmation candle has closed, enter a long position and place the stop-loss order below the low of the dragonfly doji. It is important to wait for the confirmation candle before entering a long position, as relying solely on the dragonfly doji is not enough. The subsequent candle following the dragonfly doji should be a strong bullish candle that closes above the high of the previous candle.

The Dragonfly Doji pattern can signal a shift in market sentiment, while the Supertrend indicator can confirm the trend and provide key levels of support and resistance. This pattern can indicate a potential trend reversal, making it essential for traders and investors to understand its significance. Its construction strengthens the signal for a trend reversal or, at least, a correction. Therefore, one should use the Japanese candlestick with other technical indicators and candlestick patterns. This allows one to increase efficiency, examine the market more accurately, and get strong signals to open a position. A «Dragonfly doji» is a Japanese candlestick pattern that signals a potential trend reversal.

Reversal Candlestick Patterns: Bullish and Bearish Reversal Candles

Sometimes, the stock price doesn’t accurately reflect its value because it has fallen to a low level. When the price heads back up to the near-high close, Dragonfly tells you that demand is starting to outweigh the supply. Always consider confirming your pattern and analysis by checking the trading volume. The higher volume, the generally better comfort you can have with a pattern’s formation. Crypto volatility enhances the visibility of these patterns, particularly on 15-minute to 1-hour charts.

Dragonfly Doji: Definition, Structure, Trading, Examples, and Advantages

They are shaped like a T and signal a potential reversal to a new uptrend. 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. The long lower shadow in a dragonfly doji pattern signifies that prices fell significantly during the trading session but were later pushed back up to close near the high.

• Traders and investors can use this as a signal to enter a long position or to add to an existing long position.
• Besides, a sharp spike in tick volume is seen during the construction of a «Three black crows» pattern, which emphasizes that large sellers are acting in the market.
• Certain traders may use other technical indicators like stochastic, RSI, and volume analysis to confirm a likely price reversal.
• Avoid trading patterns in low-volume markets or against strong trends.
• 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.
• Dragonfly Doji has drawbacks like trading based on the Dragonfly Doji pattern may result in higher trading expenses, which can reduce profits.

How to Trade the Dragonfly Doji Candlestick Pattern

When a Dragonfly Doji pattern forms on a currency pair, especially after strong bearish movement, it could signal a shift in sentiment. However, because forex is highly liquid, confirmation is especially important. Traders usually combine this pattern with indicators like RSI or MACD for better accuracy. Stay attuned to overall market sentiment and news that could affect the asset. Sometimes, external factors can overpower technical setups, so it’s essential to remain informed about broader market events or economic indicators that could sway trading outcomes. At its core, the Dragonfly Doji is a type of Doji candlestick—a category known for its small or nonexistent body.

• The candle that follows a doji often reveals which side wins the next round.
• For example, after spotting a hammer, wait for the next candle to close above the hammer’s high.
• In most cases, a «Doji» pattern indicates uncertainty when the market is indecisive after an extended uptrend or downtrend.
• If a dragonfly doji appears at the S3, then it would hint that a bullish rally may develop.
• Algorithms may execute trades, but they’re programmed by humans who still react to fear, greed, and uncertainty.

The length of the lower shadow indicates the extent of the sellers’ control during the session and the subsequent comeback made by the buyers. The candlestick appears in the shape of a T, which is the opposite of another Japanese candlestick named Gravestone Doji, forming an inverted T. Traders wait for confirmation before making a trading decision on whether to make a trade or not.

The dragonfly doji formed at a crucial juncture, right after the price had dipped below the trendline support. This pattern signified a strong rejection of lower prices and hinted at a possible change in market sentiment from bearish to bullish. Another excellent example of Dragonfly Doji appeared in the crypto market for Bitcoin on June 20th, 2022, when its opening and closing prices were both $20,574. This candlestick pattern created a bullish pattern for the next trading day. When the Dragonfly Doji pattern appeared, its trading volume was $35.58 billion, and therefore, the signals were taken as much more reliable for crypto traders to be hopeful.

If you see a Doji Dragonfly, it means the market price was the same at the end of the day as it was in the beginning, but there is a long “shadow” of the changing market sentiment. It indicates that sellers initially dominated, but buyers regained control. Antonio Di Giacomo studied at the Bessières School of Accounting in Paris, France, as well as at the Instituto Tecnológico Autónomo de México (ITAM). He has experience in technical analysis of financial markets, focusing on price action and fundamental analysis.

The primary distinction between a «Gravestone doji» and a «Dragonfly doji» price pattern lies in the length and position of their shadows. The «Gravestone doji» is characterized by a long shadow at the top and an absence of a shadow at the bottom, resembling an inverted letter «T». After BTC consolidated in a narrow range, the asset formed a «Dragonfly doji» pattern.

On the other hand, the bearish version of the dragonfly doji candlestick pattern appears after a sustained rally. This suggests dragonfly doji candlestick that sellers are interested in the higher prices and the asset struggles to rally. Both doji patterns provide a clue about the buyers or sellers interest in the asset. It forms when the open, high, and close prices are near the same level but it has a long lower shadow. This formation suggests buyers counteracted initial selling pressure, signalling a possible bullish shift.

This is primarily because it is not a doji (which is inherently indecisive). Rather, the hammer consists of a single candle with a small real body near the top and a relatively long lower wick. As shown in the image above, the dragonfly doji formed as its lower wick touched a previous major support level.

Profit can be taken at the nearest support level and at several lines in parts. Trading the pattern on highs implies opening short trades when building a «Dragonfly doji». The release of statistics or news on a trading instrument can spoil a trader or investor’s trading plan due to market uncertainty and elevated volatility. Let us analyze a «Dragonfly doji» pattern formation on the 4-hour time frame of the EURUSD currency pair. An example of a «Dragonfly doji» pattern is shown below on the daily chart of XAUUSD. Enter a long position after the downtrend and vice versa to enter the short position.