What makes a pattern valid is not just the shape, but also the location where it appears. The candle may or not have a wick at the top, but if it has, must be small. PEST analysis is a strategic tool that helps understand the external factors that shape financial opportunities…

After a prolonged uptrend, the dragonfly doji could be bullish or bearish. The location of the head for the dragonfly pattern appears near the high with the lower wick being extremely large. The doji star candlestick pattern will have wicks protruding from both sides of roughly the same size. The dragonfly doji can also be traded with fibonacci retracements for identifying potential reversal levels.

Trading Basics

They can be spotted before trend reversals or when there is a prevalent sentiment of indecision in the market. Investors and traders using this pattern prefer to use it along with other technical indicators to confirm trends. Investors and traders use the gravestone doji as a sign of an upcoming bearish trend reversal as there is a significant difference between the highest price and the closing price for the day. A doji candlestick can be identified by its distinct shape which resembles a plus sign or a cross symbol. Investors and traders make interpretations about price movements when they witness the cross or plus-shaped doji candlestick.

1. The key to this strategy is to use a common moving average like a 20, 50, 100, or 200-period moving average.
2. Alternatively, a Doji may be formed during a period of high volatility when the market is experiencing sharp price swings.
3. Dragonfly Doji candlestick arises when a security’s open, close, and high prices are practically identical.
4. A doji candle occurs when the opening and closing prices are very close to each other, resulting in a small or nonexistent body.
5. However, as the bulls lose steam, bear regain some control into the close of the candle with selling pressure.

Dojis can be found in different market conditions and their signals will vary significantly. Make sure to backtest the Dragonfly Doji candlestick properly before using it within a trading system. While the dragonfly pattern has its advantages, it also comes with a few drawbacks. This pattern does not occur frequently, which can limit its usefulness as a standalone trading tool. Traders waiting for this pattern to appear might miss out on other trading opportunities.

For instance, consider a scenario depicted above, where the dragonfly doji appears on the weekly chart (on the left), complemented by a breakdown of daily candles on the right. This sequence culminates in the formation of a dragonfly doji on the weekly chart, embodying a stark rejection of lower prices by the market. After a strong advance, this type of indecision could mean that the bulls are losing control, from a bearish long-legged doji. A price move lower following the pattern could induce traders to enter short positions. After a strong decline, a long-legged doji candlestick could indicate that the bears have lost momentum. A move higher following this pattern could induce traders to take long trades.

Depending on the strength of the trend, different levels are more likely to work better with the Dragonfly Doji pattern. Here you can learn more about the different Fibonacci retracement levels. To find a bullish RSI Divergence we want to see the price on a downtrend first, making lower lows and lower highs. Since we are looking for moves to the upside, we want to trade the Dragonfly Doji using support levels. Any candle which has a wick at the end tells us the banks took some kind of action during the time the candle was forming. Ritika Tiwari is a freelance content writer and strategist at Blueberry, specializing in forex, CFDs, stock markets, and cryptocurrencies.

Trading a doji star

1. Strike offers a free trial along with a subscription to help traders and investors make better decisions in the stock market.
2. The Dragonfly Doji functions as a reversal 50% of the time based on how it behaves in the market.
3. The Dragonfly Doji is a type of candlestick pattern used in technical analysis to predict potential price reversals.
4. The doji candlestick and its type must be identified from the price chart before proceeding to the next step.
5. Instead, the pattern’s overall context within the market and its position relative to other technical factors are more important.
6. Standard dojis differ from the other doji patterns mainly in their interpretation.
7. The neutral doji is a doji pattern in which the opening and closing prices are the same and there exists a wide gap between the high and low prices.

It’s important to understand what this candlestick means for your trading strategy because it could be an opportunity to take advantage of the market or it may indicate that the trend has ended. Investors and traders interpret the 4-price doji as a sign of indecision and usually wait for the patterns that follow a 4-price doji before deciding on a trading strategy. The trader placed a buy order at the high of the doji with a stop-loss level below it. The Dragonfly Doji pattern and the hammer Doji pattern have a lot in common.

Stops can be set in the body of the Dragonfly Doji or lower depending on risk tolerance. Bears take advantage of their vulnerability, slamming the price lower by shorting, as bulls sell, sell, sell. If you are day trading, the Daily Pivot Points are the most popular, although the Weekly and Monthly are frequently used too. That often signs the end of the pullback and the start of the dragonfly doji candlestick meaning new leg to the upside. Just wait for a pullback to start, and then spot when the Dragonfly Doji appears.

The best time to trade using a doji candlestick pattern is when three doji candlesticks are formed consecutively. The formation of the three consecutive doji patterns is known as a tri-star pattern. A tri-star pattern indicates a strong possibility of an upcoming trend reversal especially when it appears at the end of a prolonged bullish or bearish period. 2 doji in a row are also considered good signals of trend reversals, although not as strong as 3 doji in a row, which is also called the tri-star pattern. Doji patterns are read and interpreted based on the type of doji that appears on the price chart. There are three principal ways of interpreting doji patterns which include indecision, a continuation of the present trend and a possible trend reversal.

The Dragonfly Doji candlestick pattern is formed when the opening and closing prices are the same or very close. It is important to note that the pattern can also form with a small upper wick. The Dragonfly Doji is a reliable sign of a trend reversal when it appears at the bottom of a downtrend. This is due to the price reaching a support level during the trading day, which suggests that the market’s sellers are no longer outnumbering the buyers.

When is the best time to Trade using Doji Candlestick Pattern?

This formation resembles the shape of a dragonfly because it has an extended lower shadow. It provides bullish signals and is considered a neutral pattern as it provides continuation and reversal signals, depending on its context within a trend. The meaning of a dragonfly doji is that there is uncertainty in the market, and traders are prompted to carefully analyse other factors before making trading decisions. When you spot a Dragonfly Doji on a candlestick chart, it’s like a flare in the night sky for traders. It suggests that the market sentiment may be shifting from bearish to bullish.

Always consider confirming your pattern and analysis by checking the trading volume. The higher volume, the generally better comfort you can have with a pattern’s formation. Strike offers a free trial along with a subscription to help traders and investors make better decisions in the stock market. This long lower wick indicates that sellers sold actively during the timeframe of the candle. Price was able to bounce back and close near the high since the candle closed near the open.

When the price will open then it will move up then it will again return to the opening price. Due to the presence of large pending buy orders at the support zone, the price will return and rise to the opening price. Then the price will close at the opening price making it a Doji candlestick. A Doji candlestick is an indication of equal forces of buyers and sellers in the market. These strategies range from simple price action techniques to more complex strategies involving multiple technical indicators. If a hammer pattern occurs after a price advance, it is called a hanging man, and could signal a possible reversal if the price proceeds lower after it.

To be considered a doji, a candle’s body typically must make up no less than 5% of the total candle’s size range. Candlestick charts make it possible to apply a limited amount of knowledge regarding market patterns, traders’ emotions, momentum, and volatility. Candlestick chart patterns are indicators of these market activities and reactions.