Understanding the Dragonfly Doji Candlestick Pattern

Arjun is a seasoned stock market content expert with over 7 years of experience in stock market, technical & fundamental analysis. Arjun is an active stock market investor with his in-depth stock market analysis knowledge. Arjun is also an certified stock market researcher from Indiacharts, mentored by Rohit Srivastava. A red Dragonfly Doji forms when the closing price is slightly less than the opening price. This demonstrates that in the conflict between the bulls and bears, the bears dominate the market by a little margin. There was a great decline during the session, and then the price closed at the high of the session.

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By confirming signals from the Dragonfly Doji with signals from complementary indicators, traders can improve the accuracy of their trading strategies and reduce the chances of false signals. By understanding and applying these insights into the Dragonfly Doji, you can enhance your forex trading strategy, making more informed decisions based on the subtle signals the market offers. Remember, the key to successful trading lies in interpreting these patterns within the broader market context and combining them with other technical analysis tools for a comprehensive view. It emerges when price movement opens and closes at the lower end of the trading session.

Is a Doji pattern bullish or bearish?

Strike offers free trial along with subscription to help traders, inverstors make better decisions in the stock market. Dragonfly Doji candlestick has numerous benefits, but it also has certain limitations like not being a reliable indicator, not providing adequate entry points, and not providing price targets. The price had a significant decrease during the session before closing at its peak. The result is that the price at open, high, and close is all the same (or nearly equal) and the low is significantly lower.

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Such a pattern can only occur when the market trades down and then reverses but does not move above the opening price. Estimating the potential reward of a dragonfly trade can also be difficult since candlestick patterns don’t typically provide price targets. Other techniques, such as other candlestick patterns, indicators, or strategies are required in order to exit the trade when and if profitable. 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.

The Dragonfly Doji, following a price decline, indicates that the sellers were present early in the time,  but towards the end of the session, the buyers had lifted the price back to the open. This suggests additional buying pressure during a downtrend and could anticipate a price gain. The signal is validated if the candle following the dragonfly raises, closing above the dragonfly’s close.

After this move lower, it forms a dragonfly doji that signals a potential reversal back higher inline with the trend. A green Doji pattern forms when the closing price of a stock is higher than the opening price. This shows that the bulls are still somewhat confident in continuing their positions. Dragonfly Dojis aren’t 100% accurate, as it has been known to provide false signals. This is why traders require a confirmation candle to appear after the Dragonfly candle to confirm its signal. Dragonfly Dojia and Hammer candles are two different patterns, although they share some similarities.

In a bearish market, the appearance of a pattern can suggest that the market may be ready for a potential uptrend. Traders and investors can use this as a signal to exit a short position or to enter a long position. It will always work best when you are using it with your other technical analysis and favorite trading indicators. The dragonfly doji can signal both a potential reversal to the upside or downside.

By combining these two tools, traders can potentially improve their trading performance and achieve their financial goals. Alternatively, traders can go long when a dragonfly doji pattern appears after a prolonged selloff signals a potential trend bottom. The long lower tail indicates where bears drove prices to extremes before determined dip-buyers stepped in. The resulting pushback toward the open hints the prior descent exhausted itself and a corrective bounce may unfold.

This could be seen as a signal to consider going long or watching for a further bullish confirmation before taking action. Traders may place a stop loss below the bar with a take profit at the closest resistance level or may consider the risk/reward ratio. However, a key reversal candlestick pattern near a crucial area of chart support signals a potential shift in investor sentiment.

No upper shadow suggests that the price was unable to advance higher during the day and that there was significant resistance at the high of the day. This candlestick’s presence is most significant when it appears after a downtrend, preceded by bearish candlesticks. A Dragonfly Doji is a type of single Japanese candlestick pattern formed when the high, open, and close prices are the same. Dragonfly Dojis initially cast long wicks toward the downside, suggesting aggressive selling within the market. However, the price then recovers and closes at the price it opened at; this signals strength within the market. The day after the dragonfly, we see that the opens lower by ten cents the next day, triggering an immediate short entry.

This is important for a strategy to work in live trading, since we otherwise run a high risk of curve fitting, meaning that the strategy doesn’t work on live data. Please keep in mind that these are not meant for live trading, but to show you how we think when building trading strategies. Candlestick patterns seldom work very well on their own, and most traders would agree that you need to include some type of filter or extra condition to make them tradable. Below is an example of a dragonfly doji that is inline with the strong trend higher.

1. It is characterized by a long lower shadow and an absence of an upper shadow, with the open, close, and high prices all being very close to each other.
2. As you probably remember by now, the pattern is a bullish or bearish reversal pattern depending on if it’s preceded by an up or downtrend.
3. This could be seen as a signal to consider going long or watching for a further bullish confirmation before taking action.
4. Every candlestick pattern tells us a unique story about how the market has moved, and how market participants have acted.

The candle following a likely bearish dragonfly needs to confirm the trend reversal. The candle that comes after must drop and close below the dragonfly candle’s close. The reversal signal is void if the price increases on the confirmation candle since the price may continue to rise. This sequence shows the overall price decline has met stiff resistance from bulls at an area of perceived value. The candlestick visually tells us the market’s bearish conviction has waned, and sentiment may start improving. For traders, it signals the tide could be turning from negative to positive, foreshadowing a potential bullish price reversal.

Although it is rare, the Dragonfly can also occur when these prices are all the same. The dragonfly doji is used to identify possible reversals and occurs when the open and closing print of a stock’s day range is nearly identical. Dragonfly dojis are very rare, because it is uncommon for the open, high, and close all to be exactly the same. The example below shows a dragonfly doji that occurred during a sideways correction within a longer-term uptrend.

dragonfly doji is a basic candle shaped like a Hanging Man pattern (in an uptrend) or Takuri Line (in a downtrend). Due to the identical opening and closing prices, it is classified as a doji candle. The Japanese name means not only “dragonfly”, but also a bamboo-copter or bamboo dragonfly (jap. taketombo, 竹蜻蛉), which is a toy helicopter rotor that flies up when its shaft is rapidly spun.

Traders might depend on other candlestick patterns, indicators, or strategies to know when to exit a trade. The dragonfly doji is a critical tool for traders to decipher market sentiments, especially when evaluating the possibility of a shift from a bearish trend to a bullish signal. Moreover, understanding the nuances of this doji candle amidst other patterns is essential for making informed decisions.