Understanding the Dragonfly Doji Candlestick Pattern

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. So, in this case, the market came up higher into the area of resistance which is simply the highs of the Long-legged Doji. And you can use the level and the areas on your chart to establish a bias. When you see this chart, it can difficult to just trade off it directly.

• The Dragonfly Doji candlestick pattern is a very difficult one to trade which often leads many traders down the wrong path.
• The dragonfly is an essential variation of the Doji candle with enough weight to form reliable signals, but it is not overly complex.
• In a bearish reversal trend, the confirmation candlestick must be a bullish candle whose close is very clearly higher than the closing price of the Doji Dragon.
• Thus, this candlestick is not considered a good indicator for reversal patterns.
• There is no assurance the price will continue in the expected direction following the confirmation candle.

Most importantly, you should combine it with other volume-based indicators like the money flow index and the accumulation and distribution indicator. The benefit of using such volume indicators is that they will help you know whether the price action is supported by strong volume. This candlestick’s presence is most significant when it appears after a downtrend, preceded by bearish candlesticks. The dragonfly has a very similar appearance to other Doji candles, except it is more pronounced. Unlike a standard Doji, which has an upper shadow, this is a Doji with no upper shadow but rather a broadening lower shadow.

What an Ideal Dragonfly Candlestick Looks Like

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. A Dragonfly Doji signals that the price opened at the high of the session. There was a great decline during the session, and then the price closed at the high of the session. The dragonfly is an essential variation of the Doji candle with enough weight to form reliable signals, but it is not overly complex.

With over a quarter-million retail traders in the HaiKhuu Trading communities, we have been able to help out hundreds of thousands of stock traders. 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. If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. My book,
Encyclopedia of Candlestick Charts,
pictured on the left, takes an in-depth look at candlesticks, including performance statistics. Investopedia does not provide tax, investment, or financial services and advice.

Strategy 1: Pullbacks On Naked Charts

Traders would buy during or shortly after the confirmation candle. This tells you that, “hey, the market is willing to buy at these higher prices, and there’s a good chance that this market could breakout higher and you can look to trade the break out of the highs.” You can see the market rejected higher prices and finally closing dragonfly doji near the lows. As a swing trader, you can look to take profit at the nearest swing high or at resistance area. Often what I see traders do is that when the market moves up higher and then there’s a Doji. 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.

Candlesticks are a technical tool that packs data for multiple timeframes into single bars. There are many types of Candlesticks, including a Dragonfly Doji. The Dragonfly Doji is a specific type of candlestick pattern that can occur at the end of an uptrend. 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. Doji patterns indicate a transition in prices or that the market is undecided about the direction prices will take.

Dragonfly Doji Candlestick Chart Trading Tutorial and Example

When the confirmation candlestick is bullish, it suggests more of a continuation or a break in the trend. This very particular Japanese candlestick is composed of a long lower shadow which reflects the bearish reversal action of sellers (bears) at the start of the session. The Dragonfly Doji pattern is a bullish reversal pattern that typically forms after a downtrend or during a period of market consolidation. To trade the Dragonfly Doji candlestick pattern it’s not enough to simply find a candle with the same shape on your charts.

The dragonfly consists of a long lower shadow, with very little or no upper shadow, and a short body that can be either black or white. It has the same shape as a standard Doji, but it has more weight to it when compared to other variations on this pattern. The long lower tail of the candlestick indicates that the sellers are in control and have flooded the market which has caused the downward price movement of the security in a certain period. At the end of the period, however, the closing price is equal or almost equal to the opening price. The Dragonfly Doji chart pattern is a “T”-shaped candlestick that’s created when the open, high, and closing prices are very similar. Although it is rare, the Dragonfly can also occur when these prices are all the same.

How to Interpret the Dragonfly Doji

When reviewing any chart pattern, it is crucial to look at the volume that the pattern forms. The larger the volume of the formation, then the more reliable it is as an indicator. Ensure that you review candlestick patterns in general, so you become familiar with how to read and interpret each particular type.