How Do Traders Interpret a Dragonfly Doji Pattern?

It is difficult to estimate the return of a trade that is made according to pure dragonfly doji analysis. Traders need to use other technical indicators or patterns to identify the proper time for an exit. A Dragonfly Doji is a type of candlestick pattern that can signal a potential reversal in price to the downside or upside, depending on past price action. It’s formed when the asset’s high, open, and close prices are the same. A Japanese doji candlestick is an important signal for traders, especially if it forms at the high or the low of the trend in the daily timeframe.

But the implications of said reversal depend on price action and confirmation. The dragonfly doji candlestick is a more difficult pattern to find. These candlesticks tell a story, whether alone or together with a group. Of course, it occurs very rarely but price reversal happens constantly.

Examples in Action

Because understanding the meaning is what matters, not trying to memorize the exact candlestick pattern. Based on the looks of this candlestick in itself, this is a sign of strength because the buyers have pushed the price up higher on the last minute. So again, the close and the open is the same level but the difference this time around for Dragonfly Doji is that the candle has a lower wick. HaiKhuu runs some of the largest communities of stock traders on Facebook, Discord, and TikTok. 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.

• Most of the technical indicators or patterns are indicative of reversal patterns.Hence they are neither bullish nor bearish.
• Based on how the dragonfly doji works in the marketplace, it acts as a reversal 50% of the time.
• The color of a Doji candlestick—red or green—can provide additional information about the price action.
• The probability of leading to a profitable trade (or, in the worst case, breakeven) is very high.

A combination of these patterns means that bears control the market. Furthermore, the price tries to break out the resistance trendline but sellers return the price back during the same period. Candlestick patterns are a great decision support tool for active traders.

Trading Scenario for Dragonfly Doji

Since the opening and closing is very closer to the low of the day, it might suggest that the up-trend might be coming to an end. You can exit just below the swing low, or you can even trail your stop loss using a moving average structure. You can see the market rejected higher prices and finally closing near the lows.

Before taking action, you must wait for the strong signal and consider other indicators. 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. When the trading session begins, the sellers (bears) aggressively push the price down. Graphically this translates to the long wick under the body of the candlestick.

Is a Doji candle bullish or bearish?

Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts. That being said, as a continuation pattern, it shows that buyers are still active and could, therefore, create another opportunity to scale in or enter a trend midway through. However, it doesn’t always mean that the trend is guaranteed to change because of this dragonfly candle appearing. It works most efficiently in timeframes of one hour and longer, increasing the profit from one trade.

On the other hand, if the market has shown an upward trend previously and a formation might signal an upcoming decrease in the price of the security. The downward movement of the next candlestick will confirm the downward trend. Most importantly, you should combine it with other volume-based indicators like the money flow index and the accumulation and distribution indicator.

Strategy 5: Trading The Dragonfly Doji With Fibonacci

The amount of volume would play an important role in the interpretation, too. It is important to remember that candlestick patterns are a representation of market psychology so let’s break down what goes on behind the scenes when we see a dragonfly doji print on our charts. Conversely, when the market has shown an upward trend before, a dragonfly doji might signal a price drop, known as a bearish dragonfly.

About the author

Related posts