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A Dragonfly Doji Candlestick Pattern: Definition, Interpretation, and Trading Strategies Market Pulse

As you can see in the chart above, the Dragonfly Dojis occurs during an uptrend and does not signal a price reversal. This unreliability is reflected in our testing, which indicates that Dragonfly Dojis are not indicative of any future price move. Traders can enhance their trading strategies by utilising the free TickTrader platform, which allows them to leverage their price action skills. The size of the doji’s tail or wick coupled with the size of the confirmation candle can sometimes mean the entry point for a trade is a long way from the stop-loss location. This means traders will need to find another location for the stop-loss, or they may need to forgo the trade because too large of a stop-loss may not justify the potential reward of the trade. Together the dragonfly and the size of the next candlestick may indicate a long position from stop-loss.

  1. If the security is considered to be oversold, which may require the assistance of additional technical indicators, a bull movement may follow in the days ahead.
  2. We previously mentioned that volatility can have a great impact on the profitability of a trading strategy.
  3. You’ll notice that the price briefly increased, forming a gravestone doji candlestick.
  4. Sometimes, the stock price doesn’t show its value because it has fallen so low.

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. If you spot a Dragonfly Doji at the bottom of a downtrend, traders take it as a strong buy signal. Many trading strategies require certain patterns to form in bearish markets. The dragonfly doji at the top of a bullish trend is generally seen as a continuation pattern.

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A 0.46% win rate means that trading a Dragonfly Doji long will net you an average of 0.65% profit per trade if you sell after ten days. Conversely, short-selling a Dragonfly Doji, you should expect to lose 0.46% per trade. The primary market action behind a Dragonfly Doji is an initial bearish move followed by a significant bullish reversal. In the chart above, there is a pattern in an uptrend where the trader places a long trade on the next bar.

Dragonfly and Other Doji Types

The relative rarity of the dragonfly doji also tends to make this reversal candle less open to interpretation once it has been identified. The dragonfly doji is a candlestick pattern that is formed when the high, open and close prices are equal, or very similar, whilst there is a long wick that has created a session low. The dragonfly doji in bearish markets may suggest a possible reversal.

Is Doji a reversal pattern?

For example, you can use moving average lines like the simple moving average or VWAP to guide support and resistance. The best strategy to trade it and examples of how they have played out in the past. The idea here is to trade pullbacks to the moving average when the price is on an uptrend. Support and resistance levels are great places to find price reversals.

Is a Dragonfly Doji a Bullish Reversal Pattern?

It can also form part of another candlestick pattern like Three Black Crows or Harami Cross. We also offer real-time stock alerts for those that want to follow our options trades. You have the option to trade stocks instead of going the options trading route if you wish. Another popular way of trading the Dragonfly Doji candlestick pattern is using the Fibonacci retracement tool. Dragonfly Doji candlestick has numerous benefits, but it also has certain limitations like not being a reliable indicator, not providing adequate entry points, and not providing price targets. The accuracy of the Dragonfly Doji pattern, however,  depends on factors like the framework of the pattern, the time range of being analyzed, and other technical indicators.

The dragonfly doji is a candlestick pattern stock that traders analyze as a signal that a potential reversal in a security’s price is about to occur. Depending on past price action, this reversal could be to the downside or the upside. The dragonfly doji forms when the stock’s open, close, and high prices are equal. It’s not a common occurrence, nor is it a reliable signal that a price reversal will soon happen.

This shows that the bulls are still somewhat confident in continuing their positions. A red Dragonfly Doji forms when the closing price is slightly less than the opening price. This demonstrates that in the conflict between the bulls and bears, the bears dominate the market by a little margin. The fact that buyers didn’t manage to push prices past the open, while sellers made the market perform a deep dip, becomes a sign that the market is hesitant about moving higher.

Doji candlesticks tend to look like a cross, inverted cross, or plus sign. The signal is confirmed if the candle following the dragonfly rises, closing above the close of the dragonfly. The stronger the rally on the day following the bullish dragonfly, the more reliable the reversal is. The candle following a potentially bearish dragonfly needs to confirm the reversal, which means, the candle following must drop and close below the close of the dragonfly candle. If the price rises on the confirmation candle, the reversal signal is invalidated as the price could continue rising. Aside from the indicators mentioned above, traders would prefer to open positions during periods of higher volume, increasing this candle pattern’s reliability.

The dragonfly doji is a Japanese candlestick pattern that acts as an indication of investor indecision and a possible trend reversal. Dragonfly doji dragonfly doji meaning candlesticks are reversal candlesticks found at the bottom of downtrends. They are shaped like a T and signal a potential reversal to a new uptrend.

In Japanese, “doji” (どうじ/ 同事) means “the same thing,” a reference to the rarity of having the open and close price for a security be exactly the same. Depending on where the open/close line falls, a doji can be described as a gravestone, long-legged, or dragonfly, as shown below. It looks like an upside-down version of the Dragonfly and it can signal a possible downtrend. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools.

The mini-Dow eventually found support at the low of the day, so much support and subsequent buying pressure, that prices were able to close the day approximately where they started the day. In Chart 2 above of the mini-Dow, the market began the day testing to find where demand would enter the market, found support for the low price, but indicated a possible transition to an uptrend. The Dragonfly should be verified by waiting for trend confirmation on the following day.

A Bullish Dragonfly often occurs after a downtrend and before an uptrend. We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. We will help to challenge your ideas, skills, and perceptions of the stock market. Every day people join our community and we welcome them with open arms. What we really care about is helping you, and seeing you succeed as a trader. We want the everyday person to get the kind of training in the stock market we would have wanted when we started out.

Combining it with other technical and price action tactics is the best way to use it. In technical analysis, a Dragonfly Doji candlestick pattern indicates that buyers and sellers in the market are unsure of their positions. This indicates that neither bulls nor bears will have a clear advantage in the near-term market. Resolve to keep records of your trades involving the dragonfly doji to help you rationally evaluate its effectiveness as a trading strategy over time. Analyze your past trades to identify any strengths and weaknesses under different market conditions.

The results from 1,703 tested trades show that the Doji does not conclusively indicate a market reversal. In fact, the Doji has a low % accuracy rate of 55%, meaning it fails to predict market direction 45% of the time. Candlestick patterns should not be the sole basis for trading decisions, and it is always prudent to conduct a thorough analysis and risk management procedure before entering any trades. Once traders have confidence in their analysis, they can open an FXOpen account to actively participate in live market trading. Applying a stop-loss policy while planning a trading strategy around Dragonfly Doji can help you beat the odds. The dragonfly doji pattern doesn’t occur frequently, but when it does it is a warning sign that the trend may change direction.

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