Dragonfly Doji Candlestick: The Ultimate Guide

There is little reliability in Dragonfly Doji patterns because they are rare. Combining the dragonfly and the next candlestick size could signal a long position from stop-loss. Find out more about Doji patterns.

With this guide on the Dragonfly Doji candlestick pattern, we will show you how this technical indicator looks, explain its components, teach you how to interpret it, and discuss its limitations.

Candlesticks that look like dragonflies are called dragonfly Doji candles. It is a type of candlestick that indicates indecision in the market and may signal a trend reversal. A Doji candle has a long shadow (wick) and a small body. A candlestick session is characterised by price movement during the session, but not much at the end. This article discusses the difference between dragonfly Doji candlesticks and gravestone Doji candlesticks.

An open, close, and high price of an asset are all at the same level with a dragonfly Doji candlestick. These patterns do not happen regularly. When it signals a price reversal, the indicator is used as a technical indicator.

• Price declines or price rises may lead to a Dragonfly Doji.

• There is no difference between the open, high, and close prices, but the period's low is significantly lower than the three previous prices. The T-shape is created.

• Following a price advance, a dragonfly Doji signals a potential price decline. The next candle must make a lower low to confirm.

• After a price decline, a dragonfly Doji signals a possible price increase. The next rising candle confirms this.

• The Dragonfly Doji is usually acted upon after the confirmation candle.

What is a Dragonfly Doji Candlestick?

A Dragonfly Doji is typically viewed as a bullish reversal candlestick chart pattern at the bottom of downtrends. Dragonfly Dojis are Candlestick patterns that help traders identify areas of support and demand. Combined with other indicators, they can identify an uptrend.

Candlestick charts present the open, close, high, and low prices of an asset over some time. Candlestick charts deliver more information than line charts, demonstrating the close or average price. Therefore, the use of candlestick charts in technical analysis is more prevalent than that of line charts.

A candlestick has two parts - the "body" and the "tails." The top of the upper tail signifies the highest price the asset has ever traded. The lowest asset price traded during that period is found at the bottom of the lower tail.

Candlesticks tell you the open and close prices on their bodies. There is a hollow body in positive candlesticks, whereas there is a filled body in negative candlesticks. In a hollow body, the top represents the close price, while the bottom represents the open price, indicating an increase in price during that period. By contrast, a filled body suggests that the asset price has dropped.

Doji candlesticks are different from positive and negative candlesticks because they do not have rectangular bodies. It is a rare stock with equal open and close prices, giving it a cross shape. A Doji candlestick is a neutral indicator when viewed in isolation, as it does not offer enough information to help make trading decisions. The gravestone Doji, the long-leg Doji, and the dragonfly Doji are three types of Doji candlesticks.

What Does a Dragonfly Doji Candlestick Tell?

Dragonfly candlesticks may indicate an imminent price increase. Following an uptrend shows that more sellers are entering the market and that a price decline is likely. Both candles need to confirm the direction after the Dragonfly Doji. Dragonfly Doji patterns aren't seen often, but they indicate that a trend may change when they happen. Dragonfly's long lower shadow shows that sellers took control for a period following a price advance. Although the price ended up closing unchanged during the period, the increase in selling pressure is alarming.

The Dragonfly Doji is regarded as a sign of a potential reversal in security prices. If the open, close, and high-security prices are nearly the same, the security is virtually unchanged. Hence, a dragonfly Doji is T-shaped but with no upper tail, only a long lower tail. Dragonfly Doji with long lower tails indicates that large quantities of selling have flooded the market, causing downward pressure on the security price. In the end, however, the close price remains at the same level as the open price. There is a lot of selling in the market; however, the buyers pull the price back.

Dragonfly Dojis can predict price reversals. A downward trend in the price of a security may indicate that a price increase is imminent. A bullish dragonfly would be an example. The candlestick following the bullish dragonfly should rise and close at a higher price, which confirms the price reversal and can be used to make trading decisions. Alternatively, a dragonfly Doji could signal a price drop if the market has shown an upward trend before. If the candlestick moves downward, a price drop is confirmed.

Traders can use dragonfly Doji to make trading decisions. When the confirmation candlestick appears, they usually place orders. If a dragonfly is bullish, a trader can put a stop loss below its low; on the other hand, if it is bearish, he can place a stop loss above its high. 

On the following day, wait for trend confirmation to verify the Dragonfly. 

Support for the Low Price 

As a result of this support and subsequent selling pressure, the mini-Dow eventually ended the day roughly where it started it. 

Possible Uptrend Indicated

 A Dragonfly Doji signals the end of a downtrend and the potential for short positions to be covered.

Examples of a Dragonfly Doji

There are very few dragonfly Dojis because they are rarely the same in the high, low, and close. In general, there is a slight difference between the three prices. In the example below, the dragonfly Doji occurred during a sideways correction while the overall trend increased. After falling below the recent lows, buyers quickly swept the dragonfly Doji higher. 

Immediately after the dragonfly, the price moves higher on the following candle, confirming the price is moving upward again. Investors would buy after or during the confirmation candle. You can place stop-loss orders below the dragonfly's low.

Candlesticks provide flexibility, as shown in the example. Even though the price was not dropping aggressively coming into the dragonfly, it dropped and then was pushed back higher, confirming that the price was likely to rise more. Overall, the dragonfly pattern and confirmation candle indicated that the short-term correction had ended and the uptrend had resumed.

Dragonfly Doji in Uptrends and Downtrends

Dragonfly Doji candlesticks have different meanings during uptrends and downtrends. Continue reading to learn what they mean during uptrends and downtrends.

Dragonfly Doji in Uptrend 

A bullish trend always shows Doji candles as a sign of danger. In an uptrend, a dragonfly Doji candle indicates that bears and bulls are uncertain about where the price is going, indicating market uncertainty.

An upward-sloping dragonfly Doji candlestick gives a signal 50% of the time of a price reversal or range before the price continues to rise. The principle that the next candlestick should confirm dragonfly Doji candle price action on every chart is widely accepted by pro traders.

Dragonfly Doji in Downtrend 

In a downtrend, dragonfly Doji candles have a different meaning. The candlestick shows bears pulling the price down, but bulls defending it by pushing it upward to close it almost precisely on opening price when the price trend is downward.

During a downtrend, a dragonfly Doji candle can signify price exhaustion and a potential price reversal. In addition, you should pay attention to these candle forms and if it is close to a support zone on the chart. Support zones can be specific Fibonacci levels, lower Bollinger bands, moving average lines, or historic support levels.

Dragonfly Doji Confirmation

Whenever you're watching for confirmation of a dragonfly Doji, make sure to pay attention to the next candle. A hanging man candle following a dragonfly Doji during an uptrend indicates a high probability reversal pattern.

In addition to being very toxic at the top of an uptrend, you should also be cautious when this price pattern occurs on higher time frames. If a dragonfly Doji candle forms when the price faces a resistance level, it indicates a temporary price reversal, but further price action is needed to confirm it.

Dragonfly Doji Vs. Gravestone Doji Vs. Long-Legged Doji

In contrast to the Dragonfly Doji, Gravestone Doji looks bearish. In some cases, it can signal a possible downtrend. It looks like an upside-down Dragonfly. Besides the gravestone and long-legged Doji patterns, there are also two other types of Doji patterns.

Gravestone Doji is characterized by low, open, and close prices and a long upper shadow. The gravestone appears as an upside-down "T." The implications of the gravestone are the same as those of the dragonfly. The next candle must confirm either candle, but both indicate possible trend reversals.

The long-legged Doji, on the other hand, has long upper and lower tails, with wide price fluctuations over time. It indicates that supply and demand are indecisive around the market equilibrium. There is no consistent and reliable pattern.

Let's discuss these three individually:

Long-legged Doji

It simply has a longer vertical line above and below the horizontal line than the Long-Legged Doji. The candlestick pattern indicates that price action changed dramatically up and down during the candle's timeframe but closed at essentially the same level as it opened. Buyers and sellers are indecisive.

The Long-Legged Doji (see below chart) indicates that the price has slightly retraced after a relatively strong move to the downside. Traders could then interpret the indecision and potential change of direction by analyzing the Doji as the top of the retracement (which can't be determined at the time). Upon opening the next candle after a Doji, I will shorten the pair. When buying Long-Legged Dojis, you should place your stop loss at the top of the upper wick.

Dragonfly Doji

An appearance of the Dragonfly Doji at the top or bottom of the uptrend signals the possibility of a new trend. The horizontal bar does not have a line above it, creating a 'T' shape and signaling that did not exceed the opening price. The bottom of a bearish move close with an extended lower wick is a very bullish sign.

Gravestone Doji

Gravestone Dojis are the opposites of Dragonfly Dojis. An opening and closing price action at the lower end of the trading range indicates it. As expected, buyers pushed the price up when the candle opened but couldn't maintain the bullish momentum by the close. It signals a bearish move at the top of an upward trend.

Advantages of Dragonfly Doji

Doji is a multipurpose pattern that can detect underlying trends within particular security. A trader's arsenal should include Doji patterns. Candlesticks with Doji patterns are significant formations that represent different market conditions. The Doji pattern is often associated with market indecision, but some Doji formations are more direct and suggest trend reversals. One such pattern is the Dragonfly Doji. Although it looks pretty similar to Gravestone Doji, there are some subtle differences between them. You can reduce the risk of every move by using the correct data, but every action is risky. Check out our other articles on candlestick trading for more in-depth information. 

• The candlestick indicator is one of the most reliable reversal indicators in candlestick trading.

• It can reveal the unpredictability of common trends as indicating a potentially volatile market.

• The chart accurately illustrates market psychology and the battle between bulls and bears in the market.

• As a result of the opening and closing prices often being the same, the body of a Doji candlestick is small, with shadows.

• That can be different, such as the one discussed here.

• Market indecision is often associated with Doji forms before a trend reversal. When this occurs, bullish and bearish pulls are of equal strength.

• To form a trading decision, traders should interpret the Doji cautiously because it is direction neutral.

• Market indecision is not reflected in all Dojis. Doji patterns may indicate trend reversals, but they must be confirmed by candle patterns that form after the Doji.

• If you plan a trading strategy surrounding the Dragonfly Doji, you can beat the odds by implementing a stop-loss policy. For a long position in bullish reversal, should place the stop loss below the lowest point of the dragonfly's wick; for a short position in bearish reversal, the stop loss should be above the high end of the dragonfly's wick.

Limitations of a Dragonfly Doji Candlestick

There are very few Dragonfly Dojis, but price reversals occur constantly. Therefore, the Dragonfly Doji doesn't predict price reversals well. There is no guarantee that the price will continue, even with the confirmation candlestick. If the dragonfly Doji is high in volume, it is more likely to be reliable than low in volume. A confirmation candlestick is the same.

 The Doji pattern has several limitations, including its inability to predict price targets accurately. Using Dragonfly Doji analysis alone, it is difficult to determine the return on a trade. Other technical indicators or patterns determine the proper time to exit a business. Another limitation of the Doji pattern is that it does not provide price targets and the reliability issue. Based on a pure dragonfly Doji analysis, estimating a trade's return can be challenging. To identify the proper time for an exit, traders must use other technical indicators or patterns.

• There are very few true dragonflies because available prices, high prices, and closing prices are rarely the same.

• Successful traders typically wait until the following day to verify whether an uptrend is likely.

• Dragonfly Dojis can indicate the beginning of a bullish price move, but traders should not rely on this indicator alone:

• Dragonflies with higher-than-usual volume are more reliable than those with low volume.

• In the case of the Dragonfly appearing after an uptrend, a price decline is likely to follow.

• When determining potential buy signals, Dragonfly Doji should be used with other indicators.

Final Thoughts

A Doji is a type of technical indicator pattern that can either be bullish or bearish. An upward trend can be indicated by a Dragonfly Doji. Most traders will wait for confirmation the following day to determine if an uptrend has occurred.

An equities price Doji pattern indicates a price transition or that the market is uncertain about the direction prices will take. Rather than reversal or continuation patterns, they are better described as transitional patterns.

 In the end, neither the bulls nor the bears succeed in moving the price during a candle session, resulting in a dragonfly Doji candle. Therefore, the price moves below the opening price during the session as the bears take control, but the bulls push it up and close it almost on the opening price.