How Do Traders Interpret a Dragonfly Doji Pattern?

The Dragonfly Doji is a relatively easy chart pattern to spot in the sense that the Japanese candlestick’s close price is equal (or nearly equal) to its open price. 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. Traders need to use other technical indicators or patterns to identify the proper time for an exit. Estimating the potential reward of a dragonfly trade can also be difficult since candlestick patterns don’t typically provide price targets.

When a dragon fly doji has formed in a downtrend it is regarded as a strong signal due to the swift change of power from the sellers to the buyers. A dragonfly doji is formed when the buyers in the market have essentially managed to push the session’s candle from a session dragonfly doji low back to the session’s open price. In addition, the dragonfly doji might appear in the context of a larger chart pattern, such as the end of a head and shoulders pattern. It’s important to look at the whole picture rather than relying on any single candlestick.

Dragonfly Doji 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. Many pro traders believe that you should confirm dragonfly doji candle price action with the next candlestick on every chart. There are quite a few Doji Candlesticks you can refer to in your technical analysis. Mastering their interpretation and knowing how to implement the info into your trading sessions is vital for your trading success. It’s a Japanese candlestick pattern mostly known to day trading currency traders.

When trading the Dragonfly Doji, we want to see the price first going down, making a bearish move. The pattern is bullish because we expect to have a bull move after the Dragonfly Doji appears at the right location. If all three conditions are met then there maybe opportunities for short trades on Dragonfies appearing during downturns. 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. Prices will go much lower than the open price and then close the day close to or at the open price. Keep in mind that the size of a candlestick is relative and should be interpreted concerning previous candles.

Understanding the Dragonfly Doji Candlestick

Following a downtrend, the dragonfly candlestick may signal a price rise is forthcoming. Following an uptrend, it shows more selling is entering the market and a price decline could follow. In both cases, the candle following the dragonfly doji needs to confirm the direction. Next, there is a pullback, and the price starts a new downtrend towards the neckline of the double top pattern, where the price meets support.

Another long-legged doji appears at level 0.9746, which means market uncertainty and quite strong buying pressure. Dragonfly doji candle and gravestone doji candlesticks are very similar, and we discuss the difference further. 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.

How to Read Candlestick Charts?

In the next step, in particular, after determining the downward trend line, you can analyze the candlestick chart. You can see that, following a local correction up, the price chart draws the first reversal pattern, a dark cloud cover. A combination of these patterns means that bears control the market. Furthermore, the price tries to break out the resistance trendline but sellers return the price back during the same period. A doji candlestick pattern works the best when trading in timeframes of one hour and longer. Dojis appear too often in shorter timeframes, and one can’t take them as serious signals for a particular price movement.

The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal. As the name suggests, a gravestone doji is an ominous sign that the current trend is being exhausted and is about to reverse. Since we are looking for moves to the upside, we want to trade the Dragonfly Doji using support levels. The Dragonfly Doji pattern is also a mirrored version of the Gravestone Doji candlestick pattern. Everything that you need to know about the Dragonfly Doji candlestick pattern is here.