This is because it is a type of doji, which is inherently indecisive by nature. Nevertheless, it is widely considered to have a bullish directional bias when it appears during an ongoing downtrend due to its visual characteristics. Still, it requires a confirmation candle or at least another confirmation tool before it can be treated as a strong enough bullish reversal signal. Traders often pay close attention to them when making trading decisions. In a bullish trend, the dragonfly doji is generally seen as a continuation signal.

• Besides, it is convenient to confirm the pattern with the help of various technical indicators, which increases the probability of making the right trading decision and making a profit.
• It can be a sell signal, especially if it appears near a resistance level.
• It indicates that sellers initially dominated, but buyers regained control.
• They look like a hammer candlestick, but have much thinner real bodies.
• Profit can be taken at the nearest support level and at several lines in parts.

The dragonfly and the hammer both signal potential bullish reversals, but they differ in appearance and context. The dragonfly has no upper shadow, but it has a very small body and an extended lower shadow, while the hammer has a body at the top of the candlestick and a long lower shadow. The hammer typically appears after a downtrend, signalling a reversal, while the dragonfly doji appears in uptrends and downtrends. Traders would take a long entry on the bullish candlestick that breaks above the dragonfly. They would place their stop loss on a bearish candlestick close below the base of the dragonfly.

What does Green Dragonfly Doji Candlestick mean?

As shown above, we can see how the 20 SMA has acted as a resistance level during the prevailing downtrend, repeatedly preventing the price from breaking above it. Head and shoulders patterns consist of several candlesticks that form a peak, which makes up the head, and two lower peaks that make up the In Japanese, doji means “blunder” or “mistake”, referring to the rarity of having the open and close price be exactly the same.

Dragonfly Doji vs. Gravestone Doji: Key differences and how to trade them

• It also has a small body located near the bottom of the range and a long upper shadow.
• In this instance, the bulls were able to control the market slightly.
• The benefit of these patterns is that they provide traders with clearly defined stop loss levels, which is important to have as a trader.
• If the Dragonfly doji appears during a consolidation phase (a period of sideways price movement), it becomes unreliable.

It’s often necessary to wait for a confirmation candle to validate the pattern before making a trade decision. Or, use the dragonfly doji to help confirm other more bullish signals and technical patterns. By itself, the pattern can be misleading so look for context clues from other tools. Characterized by its ‘T’ shape, it signals a struggle between buyers and sellers where the session ends with the market price returning to the opening level. This pattern suggests a potential shift in momentum as a sign of trend reversal at the bottom of a downtrend.

Traders and investors can use the pattern as a signal to enter or exit positions. Additionally, they can combine the pattern with other technical indicators to develop more robust trading strategies. However, it is crucial to consider other factors and technical indicators before making a trading decision based solely on the pattern. While the dragonfly doji is a valuable tool for traders and investors, there are instances where the pattern may not be reliable. A “Gravestone doji” is the opposite to the “Dragonfly doji” pattern.

The Hammer pattern, which has a small body and a long lower shadow, is formed near the bottom of a downtrend, just like the Dragonfly Doji. These Doji patterns other than Dragonfly Doji makes trading easier for traders in the stock market. They are Gravestone Doji, Long-Legged Doji, Star Doji, Bearish Doji Star, Bullish Doji Star, and, Hammer Doji. First, they should look out for a downtrend, as the pattern is more significant when it appears in a downtrend indicating a trend reversal during technical analysis. The formation of a green Doji can signal that the market may pivot from this point, in case it has been in a continuous downtrend during the previous trading periods.

Bearish Reversal Patterns

The emergence of such candlestick patterns is not a usual phenomenon and is visible in rare scenarios. Overall, the Dragonfly Doji is beneficial for traders to make informed trading decisions by indicating stop loss level and trend reversal pattern. 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. It implies that the sellers initially had the upper hand but the buyers stepped in and raised the price back up to the open level, signifying a potential bullish market sentiment. 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. The simple price action strategy for using Dragonfly Doji in the stock market is to identify the trend and proceed accordingly.

You can check the efficiency of a “Dragonfly doji” candlestick pattern by opening a free demo account with LiteFinance. The multifunctional web terminal offers a wide array of trading tools that will allow you to build your trading strategy correctly and avoid losses. Like many other candlestick analysis patterns, a “Dragonfly doji” candlestick dragonfly doji candlestick pattern has advantages and disadvantages.

What is an Example of the Dragonfly Doji Pattern?

The strong bullish candle that followed served as a confirmation of the dragonfly doji’s reversal signal, validating the buyers’ newfound dominance in the market. Yes, Dragonfly Doji is considered an uptrend sell signal most of the time. The Dragonfly Doji functions as a reversal 50% of the time based on how it behaves in the market. As a result, it is neither an uptrend sell nor a downtrend sell signal candle.

The key to this strategy is to use a common moving average like a 20, 50, 100, or 200-period moving average. Incorporating disciplined position sizing and strategic stop-loss placement when trading the dragonfly doji pattern is essential for risk management. By risking no more than 1% of your account on a single trade and using the pattern itself to establish stop-loss orders, you help minimize the large losses a single trade might produce. Not setting stop-loss orders can result in substantial and sometimes unmanageable losses.

However, this also means that it might not appear as frequently as the hammer pattern. Both patterns have a relatively long wick protruding to the downside. However, the dragonfly doji’s wick may be slightly longer in an apples to apples comparison. The bullish dragonfly doji has the same shape as the bearish version, but the difference stands within the context of the current trend. When the pattern develops near a zone of support, it can confirm that the market is respecting the support and prices may continue to rally. When the dragonfly doji forms at the moving average, the pattern indicates it is respecting the moving average as a support level.

Engulfing, hammer, and morning/evening star patterns tend to be reliable, especially with volume and trend confirmation. With high volatility, round-the-clock sessions, and strong emotional swings, they provide the fastest visual feedback of crowd psychology. Over time, you’ll begin to “see” patterns forming intuitively, just as experienced traders read emotion directly from the chart.

Whether it’s a trader in Tokyo or an AI model in London, the market still oscillates between confidence and caution, leaving visible footprints in price. Watch how the same pattern behaves differently in trending versus ranging markets. The goal isn’t to memorize shapes — it’s to understand their meaning in context.

Step 5: Open the Trade

Therefore, it is important to analyze not only a “Gravestone doji” candlestick but also an asset’s current situation. When trading in financial markets, it is important to get signals comprehensively and monitor other candlestick or chart patterns and technical indicators. 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. The lower shadow of the “Dragonfly doji” candlestick pattern indicates aggressive sales in the market during candle formation. In the hammer candlestick pattern, the open, high, and close prices are not identical, while in the dragonfly doji pattern, the open, high, and close prices are almost the same.

A bullish movement may occur the next day if the asset is considered to be oversold, necessitating additional technical indicators. This may be an opportunity for additional entry points, particularly if the market opens higher the next day. Milan Cutkovic has over eight years of experience in trading and market analysis across forex, indices, commodities, and stocks. He was one of the first traders accepted into the Axi Select program which identifies highly talented traders and assists them with professional development. Sellers were initially able to price significantly lower, but buyers were able to gain control and pushed prices back towards the open price.