Dragonfly Doji Explained & Backtested 2025

Various trading strategies dragonfly doji meaning can be employed when trading the dragonfly doji, depending on the trader’s objectives and risk tolerance. Trailing stops are another useful tool for managing ongoing trade risks and securing profits. A trailing stop is a type of stop-loss order that dynamically moves with the market price. If you are in a bullish trade positioned long, a trailing stop will move higher as the market’s price moves higher.

How to Use Doji Candles to Predict Market Reversals

As such, the body appears towards the upper end of the candle with a long lower shadow beneath it. A gravestone doji suggests that bulls were initially driving the price higher before bears took control again. This strong rejection of bullish price action means that a gravestone doji is usually seen as a bearish reversal signal.

In this article, we’ve had a closer look at the dragonfly doji candle. We’ve looked at its meaning, how you could use it in trading, and also some examples trading strategies that we hope will spark your creativity to come up with your own strategies! The trend strength, which in some form is a sign of the conviction of a market, is often of great help to determine the validity and accuracy of a pattern, like a dragonfly doji. As such, the buyers succeed to push prices back to where the market opened.

• Now that we understand the anatomy and interpretation, let’s look at the practical application of trading the dragonfly doji pattern.
• Following a price advance, the dragonfly’s long lower shadow shows that sellers were able to take control for at least part of the period.
• This significant and sudden change in sentiment becomes a sign that the bearish trend might have come to an end.

The dragonfly doji is a reversal pattern that usually takes place near the highs or lows in trending markets. As a doji formation, it signals indecision, as the fight between buyers and sellers doesn’t yield a clear outcome. The following S&P 500 SPDR ($SPY) chart shows several gravestone doji that were automatically identified using TrendSpider. In each case, the gravestone doji were followed by a bearish reversal, as the candlestick pattern would predict. This formation reflects market indecision, potential reversals and trend continuations. When this pattern forms on a chart, it suggests that buyers and sellers are uncertain about the future direction of the asset’s price.

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It will certainly provide some good inspiration for trading ideas to base your strategies on! Spinning tops are similar to doji, but their bodies are larger, where the open and close are relatively close. A candle’s body generally can represent up to 5% of the size of the entire candle’s range to be classified as a doji. In this example, the gravestone doji could predict a further breakdown from the current levels to close the gap near the 50- or 200-day moving averages at $4.16 and $4.08, respectively. In Japanese, “doji” (どうじ/ 同事) means “the same thing,” a reference to the rarity of having the open and close price for a security be exactly the same. Depending on where the open/close line falls, a doji can be described as a gravestone, long-legged, or dragonfly, as shown below.

As a rule, a pin bar has a long lower or upper wick and a short body with different opening and closing prices. The candlestick pattern is most effectively combined with other candlestick patterns or chart analysis patterns. Besides, it is convenient to confirm the pattern with the help of various technical indicators, which increases the probability of making the right trading decision and making a profit. A “Gravestone doji” pattern is opposite to the “Dragonfly Doji” candlestick. A “Gravestone doji” often occurs at the highs after a long uptrend, signaling a trend reversal to a downtrend. When trading a “Dragonfly doji” candlestick pattern, you can use any timeframe, depending on the strategy.

What Is a Long-Legged Doji Candle?

A Dragonfly Doji is a specific type of single Japanese candlestick pattern that occurs when the high, open, and close prices are identical. The morning doji star is a bullish reversal pattern, while the evening doji star is a bearish reversal pattern. In essence, the three candlesticks work together to give much more reliable signals about price action than any one of them could on their own.

Combining The Dragonfly Doji with Trendlines and Support Levels

Day traders often utilize the Dragonfly Doji on shorter timeframes, such as 5-minute or 15-minute charts, to identify potential intraday reversals. For increased accuracy, they typically combine this pattern with intraday volume spikes. On the other hand, swing traders focus on the Dragonfly Doji in daily or weekly charts to recognize larger trend reversals, allowing them to capitalize on longer-term market movements. Another effective approach is using the Xmaster Formula Indicator, a momentum-based tool that provides trend confirmation. When a Dragonfly Doji appears at a critical price level and the Xmaster Formula shifts from bearish to bullish (changing color or direction), it strengthens the reversal signal.

• In the world of technical analysis, understanding candlestick patterns is essential for predicting market movements and trends.
• Long positions can be taken after a subsequent bullish closing period serves as proof for the trigger signal.
• A doji candle chart occurs when the opening and closing prices for a security are just about identical.
• But before we get into the optimal dragonfly doji trading strategy, let’s learn how to identify it on our candlestick charts.
• In such cases, a single trader or group of traders may be able to manipulate the price, leading to false signals.

So you’ve heard of the doji, but what about the dragonfly and gravestone dojis? In this addition to my free price action course, my goal is to help you correctly identify and start trading the dragonfly doji and gravestone doji. The meaning of a long-legged doji candle is that it reflects a state of market indecision and potential reversals.

As shown in the image above, the dragonfly doji formed as its lower wick touched a previous major support level. This gives the pattern greater weight, as it visually captures the buying interest that remains active around that area. With sellers failing to push the price further down, this support level is likely to hold, making a downside break more difficult.

In the image below, you can see the steps you need to take to confirm the bearish reversal. So far, we’ve explored the Dragonfly Doji pattern and examined how to identify it in various contexts. Now, let’s step into the dynamic world of trading and learn how to spot it. Trading Futures and Options on Futures involves a substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Opinions, market data, and recommendations are subject to change at any time.

Use Supporting Technical Indicators

The doji candlestick pattern suggests that the market is in a state of indecision or balance between buyers and sellers. A doji is a single candlestick pattern in which the open and close prices of the security or market are the same or very close to it. The “Dragonfly doji” candlestick is a highly efficient and strong harbinger of a price reversal. However, like other patterns, it should be confirmed by other patterns and indicators. The accuracy of the “Dragonfly doji” candlestick depends on market conditions and its position on the chart. The pattern gives a stronger reversal signal when emerging in the area of support/resistance levels.

Dragonfly doji have no upper shadow and a long lower shadow, which suggests that bulls regained control over the price after strong selling pressure. When they occur after a downtrend, these candlestick patterns can predict a bullish reversal, especially if they occur on higher than average volume. The long-legged doji candlestick pattern occurs when the opening and closing prices of an asset are very close or even equal to each other, resulting in a very small real body. These indicate that there was significant price movement during the trading session, but ultimately, the market closed near its opening price. A Gravestone Doji is a bearish candlestick pattern found in financial markets, indicating a potential trend reversal. It’s characterized by a small or non-existent body at the lower end and a long upper shadow, symbolizing a struggle between buyers and sellers where sellers gain the upper hand.

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. The dragonfly doji and the gravestone doji are similar Japanese candlestick patterns but shaped in the opposite direction. Both patterns are similar to pin bars in their construction and the market indicators they provide. However, the primary difference between these two patterns lies in the position of the long shadow.