What Are Dragonfly Doji Candlesticks and How to Trade Them?

Now that you understand the psychology behind the pattern and know how to identify it, lets take a look at an example of how to trade it. In the example above, let’s assume that we are looking at a daily chart of Crude Oil. The result is that the open, high, and close are all the same (or about the same) price. Thus, the dragonfly doji bearish advance downward was entirely rejected by the bulls. Click below to consent to the above or make granular choices. You can change your settings at any time, including withdrawing your consent, by using the toggles on the Cookie Policy, or by clicking on the manage consent button at the bottom of the screen.

HaiKhuu runs some of the largest communities of stock traders on Facebook, Discord, and TikTok. With over a quarter-million retail traders in the HaiKhuu Trading communities, we have been able to help out hundreds of thousands of stock traders. In Japanese, doji means “blunder” or “mistake”, referring to the rarity of having the open and close price be exactly the same. This pattern falls into the market reversal category and is part of the doji family. If all three conditions are met then traders who have spotted these clues may consider going long on their chosen instrument as Dragonfly Dojis often lead into strong moves upwards.

Bullish Dragonfly Doji

Candlesticks are the most common chart patterns used in the financial market. Unlike line charts and bar charts, they give more information about the open, high, low, and close prices of an asset. In an uptrend, if the next candle of dragonfly doji is a hanging man candle, it clarifies a high probability price reversal pattern. The fact the open and the close are so close together is the sole reason candlestick pattern books state pin bars have a higher probability of causing a reversal. Dragonfly Doji indicate that there may be an imminent change in market sentiment or some sort of reversal from bullishness to bearishness happening soon. The Dragonfly pattern acts as a warning sign to other traders.

The Doji symbol represents a state of indecision and balance between buyers and sellers in the market. In addition to the reliability concern, another limitation of the doji pattern is that it cannot provide price targets. It is difficult to estimate the return of a trade that is made according to pure dragonfly doji analysis.

Types of Doji Candlestick Pattern

Because the lower shadow is so long and the closing price is pegged at the top of the candlestick, upward breakouts predominate. A frequency rank of 44 means it is more plentiful than many other candles,

so you should see it often in a historical price series. Do not expect price to trend for long after a dragonfly doji.

• It’s important to understand what this candlestick means for your trading strategy because it could be an opportunity to take advantage of the market or it may indicate that the trend has ended.
• It helps to identify the trend high, which provides a more profitable entry point.
• Thus, the dragonfly doji is not a highly reliable indicator of price reversals.
• But we also like to teach you what’s beneath the Foundation of the stock market.
• Even with the confirmation candlestick, it is not guaranteed that the price will continue the trend.

These candlesticks tell a story, whether alone or together with a group. The doji candle is a neutral pattern; it can be either bullish or bearish. The character depends on the doji type and the place where it emerges. However, a doji provides a stronger signal when it appears in an uptrend; in this case, it is a sign of a bearish reversal. The doji candlestick is just one of the numerous candlestick patterns in technical analysis. Of course, the theory is essential, but you won’t succeed without practicing.

What Is a Dragonfly Doji Candlestick?

This trial gives you access to advanced features, including real-time data, custom alerts, and priority customer support. Additionally, by using my link, you can receive $30 off your subscription after the free trial ends. After consolidating this level for another session, the buyers step in and drive Pfizer up almost 9% over the next month. Ultimately tagging a high of 17% from our entry before entering a two month consolidation phase. Note how this security has been trading in a range between the upper bound ($30.85) and the lower bound ($27.85) for the last several months. The traditional formation of this pattern occurs when a security’s open, high and close are the same.

Since the candle closed near the open the price was able to recover and close near the high. Spinning tops appear similarly to doji, where the open and close are relatively close to one another, but with larger bodies. In a doji, a candle’s real body will make up to 5% of the size of the entire candle’s range; any more than that, it becomes a spinning top. Following the dragonfly, the price proceeds higher on the following candle, confirming the price is moving back to the upside.

Strategy 2: Trading The Dragonfly Doji With Support Levels

A gravestone doji is a bearish reversal candlestick pattern formed when the open, low, and closing prices are all near each other with a long upper shadow. A Japanese doji candlestick is an important signal for traders, especially if it forms at the high or the low of the trend in the daily timeframe. In this case, there is a high probability of a bearish reversal or a correction for the asset. The dragonfly doji, like all the other candlestick patterns, should not be used in isolation. The best approach of using it is to combine it with other technical and price action strategies.