Doji Candle Types: Dragonfly, Gravestone & More

Our stop loss should be placed above the high of the gravestone doji to ensure we protect ourselves if the trade goes against us. The next candle after the doji breaks the trigger line, therefore we open a short position. It is important to mention that the risk management rules for this strategy will vary due to the size of the wick. The psychology behind the candle is that the bulls were in control in the beginning.

At the gravestone doji, the open and closing prices are at the same/almost the same value. When the market is in an uptrend and this doji pattern forms, it gives an initial signal that the trend will reverse downward. In this case, the Gravestone Doji also came after an evident bearish trend. Still, by itself, it didn’t provide gravestone doji any strong enough indication as to what a trader could expect to happen next. Joe Marwood is an independent trader and investor specialising in financial market analysis and trading systems. He worked as a professional futures trader for a trading firm in London and has a passion for building mechanical trading strategies.

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Among the similarities, there is a fact that both of them tend to happen at the top of an upward movement. The main difference between these two candles is that the gravestone doji’s open, close and low prices should be equal while the inverted hammer should have a so-called real body. By the way, the doji patterns by their nature are endow by wicks (at least one wick in case of gravestone doji) and the absence of the body. Taking into consideration the mentioned above formation, the gravestone doji candle that showed up on the chart at the top of an uptrend movement is likely a reversal sign in the price action. Especially when combined with multiple reversal patterns and confirmation candles, these doji’s can be used to help traders pick the best entries and exits to their long and short positions. The Doji candlestick pattern is an essential technical analysis tool traders and investors often use to understand market sentiment.

When you see a Gravestone Doji candlestick after a strong uptrend, it is likely that a trend reversal is going to happen. As we said during the article, when you see a Gravestone Doji candlestick after a strong uptrend, it is likely that a trend reversal is going to happen. However, remember, it is essential to wait for a confirmation and act upon it. Gravestone Doji Candlestick is one of the most controversial Candlesticks should be known as a trader. One crucial aspect to look out for when trading is to only act when the candlestick pattern has been validated by the session close. In this quick 10-minute guide, we’ll get you to an expert level of understanding on identifying Gravestone Doji candle chart patterns and how you can use them to capture more profits.

Testing the Gravestone Doji Candlestick

Now that we know the basics of a Gravestone Doji candle let’s get to know how to trade it. In an uptrend the appearance of a Gravestone Doji at the top indicates the announcement of uptrend end and the uptrend is most likely over. As it is said before, Gravestone Doji is most likely to come at the top of an uptrend. Gravestone Doji is a long line candle which means the shadow should be at least 75 percent or higher of the candle hight. A Dragonfly Doji looks like a Dragonfly and like the word T (which is like having the wings of dragonfly near the head on top). A dragonfly can fly and go up so as a dragonfly Doji can bring the price up and has bull power in it.

The phrase ‘trend is your friend’ is more famous to the majority of the traders though they ignore it most of the time. On the contrary, the trend reversals are usually heavily anticipated and traders are looking for the start of the movement in the opposite direction. Also, many traders overview various markets, looking for turnaround point because such scenarios offer high risk-reward ratios which is a key aspect of risk management. The stop loss can be placed below the lowest gravestone doji, and the profit target is at the next support level. However, if the sellers successfully push the price back to the opening level, they have more power in the short term, and a gravestone doji pattern could form.

What is The Gravestone Doji and How to Trade With It?

This will provide a lower purchase price and trading risk should the price continue to fall. From the USD/CAD H1 chart above, the uptrend has changed to a downtrend. However, the resistance level used to sell here is the support level that has been broken and becomes resistance (support becomes resistance). Traders can use the RSI and MACD indicators to confirm this pattern. In addition, this candlestick has a shape that attracts attention, so it’s easy to find.

Joe Marwood is not a registered investment advisor and nothing on this site is to be regarded as personalized investment advice. It’s fair to say that I have become slightly obsessed with candlesticks over the last couple of weeks and I will most likely put my findings into a new course/eBook so stay tuned for that. In this example, the gravestone doji (shown by the red arrow) was early but the market did eventually reverse to the downside. HaiKhuu LLC was officially established in January 2018 by the Founder and CEO, Allen Tran.

The Gravestone Doji Pattern – Pros and Cons

The Bears have managed to push the price down from the HIGH of $5 back to $3. By simply looking at the image we can derive a story (and OHLC analysis) of what happened during the trading day. As such, it is usually important to use them in combination with other technical indicators like moving averages and RSI.

This pattern indicates the market’s indecision about pricing direction. Doji patterns indicate a transition in prices or that the market is undecided about the direction prices will take. As a category, they are best described as a transitional pattern rather than a reversal or continuation pattern. Specific types of Doji patterns – like the Dragonfly or the Gravestone – can signal a possible reversal in prices but are best used in conjunction with other indicators for verification. You can check out our candlestick patterns cheat sheet to find more patterns like this to improve your forex trading capabilities. It’s a unique candlestick pattern and identifies a potential sudden swing in momentum to the downside and can be power for swing trading.