Dragonfly Doji: Definition, Pattern Analysis, and Trading Tips

The long lower shadow reflects selling pressure that was absorbed by buyers, making it a strong bullish reversal signal, especially in a downtrend. However, it is crucial to confirm this signal with subsequent candlesticks or volume increases to avoid false breakouts. The Dragonfly Doji is a bullish Doji candlestick pattern that occurs when the opening, low, and closing prices are almost the same, with a long lower wick. This formation suggests that buyers regained control after a period of selling pressure. The Dragonfly Doji candlestick pattern is particularly significant when it appears after a downtrend, potentially signaling a reversal to the upside.

This article represents the opinion of the Companies operating under the FXOpen brand only. The main difference between the Dragonfly Doji and hammer Doji is that the former opens and closes at the same place whereas, the latter opens lower and closes slightly below the opening price. The action can be more significant depending on the length of the wick. PEST analysis is a strategic tool that helps understand the external factors that shape financial opportunities…

1. You could also see the right shoulder of an inverse head and shoulders pattern.
2. If it appears after a price advance, it indicates more selling is entering the market and a price decline could follow.
3. The trend continues lower, but is abruptly reversed to higher prices.
4. While the dragonfly doji has a long lower shadow and little or non-existent upper one, the gravestone or inverted dragonfly doji has a long upper wick and little or non-existent lower one.
5. 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.
6. If the price is moving sideways overall, or consolidating, the long-legged doji may confirm that the traders still are not sure which way to go.

What Is a PEST Analysis? Benefits & Business Use Cases

There is no assurance the price will continue in the expected direction following the confirmation candle. Dragonfly dojis are very rare, because it is uncommon for the open, high, and close all to be exactly the same. The example below shows a dragonfly doji that occurred during a sideways correction within a longer-term uptrend. The dragonfly doji moves below the recent lows but then is quickly swept higher by the buyers.

START TRADING WITH ALCHEMY MARKETS

When a pin bar forms the point where the candle opened and where it closed are always different, you see this as the body of the pin. When dragonfly or gravestone doji candlestick forms there is almost no difference or a really tiny difference between the open and close price meaning there is no body found on the candlestick. A dragonfly doji forms in an uptrend, but it typically occurs in a decline and indicates a reversal. However, it needs further verification by other candlestick patterns when it happens during an increase.

These platforms facilitate the buying and selling of assets like stocks, commodity, and index futures, providing transparent and accurate volume data. The absence of a centralized exchange in OTC markets means that volume data might not capture the entire market’s activity, potentially leading to misleading signals. For instance, volume indicators in the Forex market often reflect the activity of a particular broker or a consortium of brokers rather than the entire market.

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”. In the case of a “Gravestone doji,” the opening price also equals the closing price. 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.

You can trade both Dragonfly and Gravestone Doji in a range or trending markets. The Dragonfly candle works well when used in conjunction with other indicators and has high volume. After a strong advance, this type of indecision could mean that the bulls are losing control, from a bearish long-legged doji. A price move lower following the pattern could induce traders to enter short positions. After a strong decline, a long-legged doji candlestick could indicate that the bears have lost momentum. A move higher following this pattern could induce traders to take long trades.

Candlestick Pattern

Primarily, you’ll spot this pattern at the bottom of downtrends, where it suggests a possible reversal. This candlestick pattern often catches the eye of traders due to its distinctive shape and potential implications for market trends. To employ a Dragonfly Doji for stock trading, you must have a solid trading method incorporating the pattern into its signaling system rather than using it as a stand-alone signal.

Also, the length of the shadow will be much longer in the dragonfly doji relative to the hanging man candlestick pattern. Lastly, the size of the head on the dragonfly will be even smaller than the head on a hanging man. In contrast, a dragonfly doji has no or a very small body at all, indicating that the open and close prices are near similar price levels.

Practice risk management by keeping your trades to a size that does not expose your portfolio to excessive risk. Diversifying your trades and using stop-loss orders can help protect your investments from unexpected market movements. The Dragonfly Doji formation occurs in a trading environment where the security opens, drops to a low during the session, and then is driven back up to close at or near its opening price. On a daily bar, why does the price only reverse enough to reach the daily opening level?

Expert traders frequently start positions immediately after the close of the price candle that follows. This assists in avoiding false breakout signals, which can quickly lead to excessive losses. Stop-loss orders are positioned below the price low of the pattern when taking long bets on a bullish Dragonfly Doji reversal. Certain traders may use other technical indicators like stochastic, RSI, and volume analysis to confirm a likely price reversal. The Dragonfly Doji is a candlestick pattern that occurs when the high, open, and close prices are equal, or nearly similar, while a long wick has created a session low. A wick is a line used to show where the stock’s price has fluctuated to its opening and closing prices.

1. It’s a smaller reversal candle, and the success of the pattern depends on the strength of the bullish pattern after the reversal.
2. Candlestick patterns should not be relied upon as the sole factor in trading decisions.
3. The dragonfly doji has a long lower shadow, indicating a potential bullish trend reversal.
4. The candlestick patterns, indicators are required to exit the trade when it is profitable.
5. We teach day trading stocks, options or futures, as well as swing trading.
6. It is a rare type with equal open and close prices, which gives it a cross shape.

How to Trade Dragonfly Doji Candlestick

The long dragonfly doji meaning lower shadow would suggest a bullish move according to some authorson candlesticks. However, when the opening and closing prices match, it speaks of indecision. A Doji candle forms when the market’s opening and closing prices are very close, often represented by a simple line or a candle with an extremely small real body.