What Is Dragonfly Doji and How Can It Be Used?

Traders typically enter trades during or shortly after the confirmation candle completes. If entering long on a bullish reversal, a stop loss can be placed below the low of the dragonfly. If enter short after a bearish reversal, a stop loss can be placed above the high of the dragonfly. Apart from doji candles, you can also learn accurate candlestick patterns to reversal candlestick patterns at Indodax Academy. In general, the neutral doji and the spinning top indicate uncertainty in the market, which is confirmed by their wicks (shadows).

Both indicate possible trend reversals but must be confirmed by the candle that follows. Therefore, when trading this pattern, it is necessary to confirm dragonfly doji the signal using other candlestick patterns or technical indicators. Of course, it occurs very rarely but price reversal happens constantly.

Understanding the Dragonfly Doji

The Dragonfly Doji candlestick pattern is a very difficult one to trade which often leads many traders down the wrong path. Doji is a category of technical indicator patterns that can be either bullish or bearish. The Dragonfly Doji is a bullish pattern that can indicate a reversal of a price downtrend and the start of an uptrend. Note that most traders will verify the possibility of an uptrend by waiting for confirmation the following day.

It’s formed when the asset’s high, open, and close prices are the same. The pattern provides a clear indication of where support and demand are located on the chart. When a Dragonfly Doji occurs in a downtrend, it is interpreted as a bullish reversal signal, indicating a potential change in market direction. 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.

Color Variations of the Doji Pattern

However, when the opening and closing prices match, it speaks of indecision. This price action results in a dragonfly doji printing right at a key level of support which signals indecision between buyers and sellers at this level and that a potential bottom may be in here. The dragonfly doji rarely occurs, but price reversal happens constantly.

A dragonfly doji candlestick is a candlestick pattern with the open, close, and high prices of an asset at the same level. It is used as a technical indicator that signals a potential reversal of the asset’s price. They both clearly show an action taking place the same way pin bars do and they both have the same effect upon the traders in the market when they form.

Limitations of Using the Dragonfly Doji

During the period of the candle, bears initially push the price lower, but buyers step in and drive the price back up, rejecting the lower price levels. Pfizer manages a range of 74 cents on the day (1.6 times the average true range), however, the bears come out with nothing to show for their efforts as Pfizer closes the session right where it opened. Another important thing to note is the higher than average volume that traded on this session without any gains for the bears. TrendSpider is a suite of research, analysis, and trading tools (collectively, the “platform) that are designed to assist traders and investors in making their own decisions.

• A Candlestick is a price chart that depicts the Open, High, Low and Close of a particular security for a specific period.
• If you want a quick refresher about candlestick patterns, click here to read this article first.
• Another difference on the dragonfly doji when it forms at a support level or its bottom will indicate that there will be a reversal towards an increase.
• The Doji candlestick pattern is a valuable tool for understanding market sentiment and potential trend reversals.
• 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.
• The signal is confirmed if the candle following the dragonfly rises, closing above the close of the dragonfly.

Although they are uncommon, when they are confirmed, they can provide a valid bullish trend reversal indicator. Investopedia does not provide tax, investment, or financial services and advice. 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.

What is Dragonfly Doji and How to Trade?

The long downside wick can be interpreted as a capitulation of bears. This signals that any remaining selling pressure in the market has likely run its course as the shorts scrambled to cover their positions. Furthermore, the context of the pattern must make sense with what the market is doing. To this point, a dragonfly doji is most reliable when it forms after a period of recent selling pressure. Let’s take a look at how to use both of these important reversal candlestick patterns to improve your trading.

• Although it is rare, the Dragonfly can also occur when these prices are all the same.
• 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.
• This signals that any remaining selling pressure in the market has likely run its course as the shorts scrambled to cover their positions.
• In both of these charts, the candlestick pattern provided decision support.

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. It’s a unique chart pattern and demonstrates a significant swing in momentum to the upside which is perfect for swing trading. This information can be golden if you are a swing trader, or looking to exit a position.