Doji candlestick pattern is one of the most important Japanese candlestick patterns, when this candlestick forms, it tells us that the market opens and closes at the same price which means that there is equality and indecision between buyers and sellers, there is no one in control of the market.
See the example below:
As you can see the opening price is the same as the closing price, this signal means that the market didn’t decide which direction will take. When this pattern occurs in an uptrend or a downtrend, it indicates that the market is likely to reverse. See another example below to learn more:
The chart above shows how the market changed direction after the formation of the Doji candlestick. The market was trending up, that means that buyers were in control of the market. The formation of the Doji candlestick indicates that buyers are unable to keep price higher, and sellers push prices back to the opening price. This is a clear indication that a trend reversal is likely to happen.
Remember always that a Doji indicates equality and indecision in the market, you will often find it during periods of resting after big moves higher or lower.
When it is found at the bottom or at the top of a trend, it is considered as a sign that a prior trend is losing its strengths. So if you are already riding that trend it’s time to take profits, it can also be used as an entry signal if it is combined with other technical analysis.
Dragonfly Doji candlestick pattern
The Dragonfly Doji is a bullish candlestick pattern which is formed when the pen high and close are the same or about the same price. What characterizes the dragonfly Doji is the long lower tail that shows the resistance of buyers and their attempt to push the market up.
See the example below:
The image above shows us a prefect dragonfly Doji. The long lower tail suggests that the forces of supply and demand are nearing a balance and that the direction of the trend may be nearing a major turning point. See the example below that indicates a bullish reversal signal created by a dragonfly Doji.
In the chart above, the market was testing the previous support level that caused a strong rejection from this area. The formation of the dragonfly Doji with the long lower tail shows us that there is a high buying pressure in the area. If you can identify this candlestick pattern on your chart, it will help
you visually see when support and demand are located. When it occurs in a downtrend, it is interpreted as a bullish reversal signal. But as i always say, you can’t trade candlestick pattern alone, you will need other indicators and tools to determine high probability dragonfly Doji signals in the market.
The Gravestone Doji
The Gravestone Doji is the bearish version of the dragonfly Doji, it is formed when the open and close are the same or about the same price. What differentiates the Gravestone Doji from the dragonfly Doji is the long upper tail. The formation of the long upper tail is an indication that the market is testing a powerful supply or resistance area. See the example below:
The image above illustrates a perfect gravestone Doji. This pattern indicates that while buyers were able to push prices well above the open. Later in the day sellers overwhelmed the market pushing the price back down. This is interpreted as a sign that bulls are losing their momentum and the market is ready for a reversal.
See another chart below:
The chart above shows a gravestone Doji at the top of an uptrend, after a period of strong bullish activity. The formation of this candlestick pattern indicates that buyers are no longer in control of the market. For this pattern to be reliable, it must occur near a resistance level.