dragonfly doji meaning: How Do Traders Interpret a Dragonfly Doji Pattern?

technical analysis

On the second example, we see the USD/ZAR pair in also a minor https://g-markets.net/ trend. The fourth one opened slightly below where the third one closed, fell sharply, and then closed near where it opened. Long legged DojiAs it’s pretty evident that the price movement is equal between the bulls and the bears. However, since there is active participation from both the bulls and bears, suggesting volatility in the price soon. The Doji Dragon is, therefore, no exception to the general rule of Doji.

candlestick patterns

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Two candlestick patterns which have a lot in common with pin bars both in terms of their construction and what they show in the market are the dragonfly and gravestone doji. A dragonfly doji is a candlestick pattern that signals a possible price reversal. The candle is composed of a long lower shadow and an open, high, and close price that equal eac…

Dragonfly doji for forex

First, this chart configuration marks the end of a downward trend movement. That means one can enter an upward position by setting a tight stop loss and taking a relatively low risk. The stop loss can be set on the low of the Japanese candlestick representing this graphic pattern. Moreover, when we observe this recurring pattern, we feel the buying pressure, and therefore we can position ourselves quite serenely on the purchase.

Small red candles, especially following large red candles, may indicate indecision or a slowdown in selling. Four price doji is a candlestick where open, high, low, and close are all the same. This candle reflects the highest extent of indecision between bulls and bears. It appears when price action opens and closes at the lower end of the trading range.

What is a Doji

The dragonfly doji meaning doji candlestick pattern is a sporadically occurring pattern on the price charts of stocks, ETFs and stock market indexes. The formation of a dragonfly doji candle indicates a potential reversal of the ongoing trend of the prices. For instance, if the dragonfly doji is formed when the price is in downtrend, then the price may start to move up after the formation of dragonfly doji. The dragonfly represents a state of indecision about the future direction of the price movement of the security, which mostly leads to the trend getting reversed. The gravestone doji occurs when all three market prices are near each other, forming a bearish reversal candlestick pattern. The long upper shadow indicates that the bear market reversed the bullish advance made at the start of the session.

At closing, the security price has returned to the starting point. Buyers were not strong enough to push the stock’s value above the opening price. Many traders use the Dragonfly Doji as an official warning signal of reversal in your trading strategy, so you want to act on it quickly before the trend resumes.

This means that you can enter long after the pattern at the open of the next bar. In case you are more conservative, you can wait for a confirmation. A good confirmation is if the next bar closes above the high of the dragonfly doji. Place your stop a few pips under the low of the dragonfly candle. If you wait for a confirmation that usually means that your risk/reward ratio drops as the entry point is farther away from your stop.

trading the dragonfly

In itself the pattern is not very reliable, especially in case of those instruments, where there is not a lot of volume. Our performance rank is 4 out of 4, which means this is among the weakest patterns. You can still trade it safely however if you apply the reinforcement factors mentioned above. There is a green close for an upward rally, and there is a red close for a downward trend. CharacteristicDiscussionNumber of candle linesOne.Price trend leading to the patternNone required.ConfigurationLook for a long lower shadow with a small body .

— Dragonfly Doji, if supported by strong rising volumes, can result in a reversal trend that possesses a strong underlying strength. The trader can put a stop-loss below the low of the bullish dragonfly candlestick. Now there are various types of Doji candle patterns, and the first is, of course, the standard one. It means that the open and close have happened at the same level.

Limitations of the Dragonfly Doji

Dragonfly dojis gain significance when they are formed during the uptrend or the downtrend. The formation announces a potential reversal after a long downtrend in the stock prices, especially when the lower shadow is considerably long. Dragonfly doji means that sellers had the full control during the initial phase when the price opened and they took the price down to the lowest level. However, the buyers regained the control and pulled the prices back to the top initial level before the candlestick close.

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The candle can be on all timeframes, including on a daily, hourly, and 30-minute chart. Dragonfly doji candlestick pattern on bitcoin chart in the cryptocurrency marketIn the second example, a bullish dragonfly doji appeared after a bearish one on a daily timeframe. These candles prevented the price to go lower, and they showed a sign of support, so price continued to go higher. This doji candlestick formation is cautiously looked upon by the market players traders who follow technical analysis using price charts and patterns.

Does red candle mean sell?

It is critical to note that most traders wait for confirmation the next day before deciding whether or not to believe in an uptrend. The three different types of Doji candlestick pattern that you must be aware of. Look for signs of confirmation on trend reversal then open trade and put your stop loss on near local support/resistance. Moreover, You should pay attention when and where this candle forms and if it’s near the support zone in a chart.

When the body of a Dragonfly Doji candle extends for an extended period of time, the indicator of a reversal becomes stronger. The majority of traders enter the market during or shortly after the second candle has been formed. A stop-loss policy can be a valuable asset when planning a trading strategy.

  • Also usually traders even if the pattern appears will wait for the next day to verify.
  • The long lower shadow indicates that the bears were in control of the market early on in the trading period, pushing prices down.
  • Again, you can go short on the next candle open, stop loss either above the high and then look to ride the move down lower.
  • The dragonfly Doji also suggests a high level of indecision from both sellers and buyers.
  • A good example of a dragonfly doji pattern is shown in the four-hour EUR/USD pair shown below.

Conversely, when the market has shown an upward trend before, a dragonfly doji might signal a price drop, known as a bearish dragonfly. The downward movement of the next candlestick will provide confirmation. If dragonfly doji candle forms when the price is reaching a resistance, it shows temporary price reversal, but you should follow further price action to confirm it. As with any indicator in technical analysis, the more additional analysis and research that is done to support a trade, the stronger the use of the dragonfly doji becomes.

That means the open, high and close prices are very similar to each other, while the low price is proportionately far away from the trio. After a downtrend, the Dragonfly Doji can signal to traders that the downtrend could be over and that short positions could potentially be covered. Traders were able to push the price higher from the session low all the way back to the open price when the previous candlesticks have been bearish.

Of course, it occurs very rarely but price reversal happens constantly. Thus, this candlestick is not considered a good indicator for reversal patterns. They create orders immediately after the trend of confirmed by the next candlestick.

Forex, Gold & Silver:

As shown below, the dragonfly doji has a similar appearance to the hammer pattern or capital letter T. In this article, we will look at the dragonfly doji, which is another popular type of the pattern. A Dragonfly Doji signals that the price opened at the high of the session.

trading the dragonfly

Cory is an expert on stock, forex and futures price action trading strategies. The pattern typically appears at the bottom or end of a downward trend. A Dragonfly Doji is a sign of strength because it shows you rejection of lower prices, a variation of this candlestick pattern is the hammer. Hammer candle always has a bigger body in comparison to dragonfly doji. As we discussed above, dragonfly doji is a kind of doji candle which means they have a small body. Dragonfly doji pattern can’t define a particular profit target, and it entirely depends on price action and especially if the trend is downward or upward.


The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes. The technical storage or access that is used exclusively for anonymous statistical purposes. Trading forex on margin carries a high level of risk and may not be suitable for all investors. 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. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey.

The probability of leading to a profitable trade is very high. Between 74%-89% of retail investor accounts lose money when trading CFDs. When a dragonfly doji is confirmed in an uptrend it is considered a weak signal, or a continuation pattern as the buyers still managed to be active.

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