Dragonfly Doji: How to Spot and Trade Candlestick Patterns

There are different types of moving average, you can use — simple, exponential, or linear-weighted — but we prefer an 8-period or 21-period simple moving average at the session close. They can help you identify the trend direction and can act as a dynamic support level in an uptrend. The price climbed above a resistance level (the tick brown line), which later became a support level. The pattern signifies a tight consolidation after a price move, and depending on where it forms, it could lead to a change in the price direction or a continuation in the present direction. But, at some point in the trading session, the price traded up, even though the bears brought it down later to close at the opening price. That is also why it is important you don’t trade this signal by itself and that you use it in conjunction with your other technical analysis.

The Dragonfly Doji is a bullish pattern that can indicate a reversal of a price downtrend and the start of an uptrend. Note that most traders will verify the possibility of an uptrend by waiting for confirmation the following day. As a bearish reversal signal, the gravestone pattern can only form a tradable setup at the upper boundary of the range. For the dragonfly doji, there are many ways to develop a trading strategy with it, but the most reliable setups with this candlestick pattern are the ones that occur in the direction of the trend. The doji candlestick pattern is one of the most common candlestick patterns you will see on your price chart.

  1. Also known as the neutral doji or doji star, this candlestick has relatively small upper and lower wicks, which are about the same size.
  2. Although, as we have discussed earlier, the Doji pattern signals an important reversal in prices.
  3. All website content is published for educational and informational purposes only.
  4. Especially if they are used with another indicator or support levels.
  5. Traders should utilize prudent risk management given swing lows/highs still carry breakout/breakdown risk both ways post-pattern emergence.

Yes, we work hard every day to teach day trading, swing trading, options futures, scalping, and all that fun trading stuff. But we also like to teach you what’s beneath the Foundation of the stock market. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools.

Assuming it happens at the bottom of a downtrend, traders will likely react by opening a long position. Meanwhile, those with active short positions will likely close them in preparation for a reversal. The Dragonfly Doji is considered a robust and reliable signal in these situations. Once again, it’s advised that traders should use the Dragonfly Doji alongside other indicators. Dragonfly Doji is a basic candle shaped like a Hanging Man pattern (in an uptrend) or Takuri Line (in a downtrend).

In this case, however, the lack of a dojis upper wick indicates that buyers could dominate over sellers, pushing prices higher before they could turn around. Overall, the dragonfly doji is considered a bullish signal and suggests that prices may continue to rise shortly. The accuracy of the dragonfly doji varies depending on market conditions and the presence of supporting indicators that also suggest a market reversal is imminent.

Bullish Engulfing Candlestick Pattern: What Is and How to Trade

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. The day after the dragonfly, we see that the opens lower by ten cents the next day, triggering an immediate short entry. The same day prints a large bearish candle, and intelligent traders would have captured significant profit. After a dragonfly doji has formed, it will alert you that a change in trend is potentially about to occur. Naturally, dragonfly patterns form at the bottom of a downtrend or where the price has found support. When it happens in an uptrend, it is usually a sign that the asset will reverse downwards and vice versa.

Is Dragonfly Doji bullish or bearish?

In Chart 3 above (doji B), the doji moved in the opposite direction from the movement shown in Chart 2. 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. That being said, as a continuation pattern, it shows that buyers are still active and could, therefore, create another opportunity to scale in or enter a trend midway through. However, it doesn’t always mean that the trend is guaranteed to change because of this dragonfly candle appearing. In the second example, we see the USD/ZAR pair also in a minor downward trend. The fourth one opened slightly below where the third one closed, fell sharply, and then closed near where it opened.

Savvy traders utilize strategies to enter against the prior trend upon a Dragonfly sighting. Ideally, another confirmation candle reinforces the reversal before positioning. It allows capturing optimal entries while defining initial protective stops. Whether fading bounces from euphoric peaks or buying capitulation lows, the dynamic dragonfly doji gives observant traders an edge to target reversions. We’ll cover specific methods for trading bullish and bearish candlestick variants, with guidelines for planning long and short setups when the pattern emerges on your candlestick charts.

What is a long-legged doji candle?

The pattern is more significant if it occurs after a price decline, signaling a potential price rise. If it appears after a price advance, it indicates more selling is entering the market and a price decline could follow. The pattern needs to be confirmed by the candle following the Dragonfly Doji. When this long-legged doji candle appears at swing highs or lows, it demonstrates indecision and warns traders to prepare for a likely trend reversal.

Use this to your advantage as a trader, and you will be able to make profitable trades in no time. It is essential to study candlestick patterns thoroughly to recognize them before others recognize them. Even beginner candlestick chart analysis software like candlestick chart analysis by hand will help you better attract a graph by hand. The dragonfly doji is a candlestick pattern that appears during a trend. Examples of the dragonfly doji can be seen in the market, as this pattern tends to occur after a bullish reversal and before a downtrend. The doji candlestick pattern is characterized by a closing price of 17% lower than the opening price and an open price of 17% higher than the closing price.

How to handle risk with the Dragonfly Doji pattern?

It appears when a purchase has been trading in a downtrend for a long time and then reverses to trade back in the same order. Dragonfly doji candlesticks are of two types – long body and short body. The lower shadow of the doji candlestick pattern acts as an area of support for future prices, indicating that the price of a stock could potentially rebound from this level. However, the way is not guaranteed and may appear only 50% of the time.

This doji has long upper and lower shadows and roughly the same opening and closing prices. In addition to signaling indecision, the long-legged doji can also indicate the beginning of a consolidation period where price action may soon break out to form a new trend. These doji can be a sign that sentiment is changing and that a trend reversal is on the horizon. In this guide, we’ll cover everything from reliably identifying the https://g-markets.net/ on price charts to optimal strategies for capitalizing on the bullish signals they provide.

Are Candlestick Patterns Reliable

The Bullish Bears trade alerts include both day trade and swing trade alert signals. These are stocks that we post daily in our Discord for our community members. Sometimes, the stock price doesn’t show its value because it has fallen so low.


Leave a Reply

Your email address will not be published. Required fields are marked *