Doji is a very basic and extremely important candlestick pattern that every trader who trades under the Japanese candle pattern must know. There is a lot to say about this candle. Doji in Japanese means "unchanged". The special thing is that this "unchanged" sometimes can create big turning points for market trends.
IN Previous article about Doji candlesWe refer to the 2 most basic candlesticks as the regular and long-tail doji. If you have not read it, you can see it here. In this article, we continue to introduce the Dragonfly Doji (Doji dragonfly) candle pattern and its opposite pattern is the Gravestone Doji (Doji tombstone).
What are Dragonfly Doji and Gravestone Doji?
Dragonfly Doji (Doji dragonfly) is also a type of Doji candle, meaning that the opening and closing prices are equal or close to the same. The special feature here is that the lower beard of this model is long while the upper beard is not or very short, looks very similar to the shape of a dragonfly.
In contrast to this model is Gravestone Doji (tombstone Doji) with long upper beards and extremely short lower beards or without
Features of Dragonfly Doji and Gravestone Doji
Features of Dragonfly Doji:
- May appear in both uptrend and downtrend
- Short body
- The lower shadow is long but there is no upper or very short shadow
When appearing at the bottom of a downtrend, the Dragonfly Doji closely resembles the Hammer candle. When appearing at the top of an uptrend, the Dragonfly Doji is similar to the Hanging man candle. However, the signal of this Doji candle is not as strong as the two candlestick patterns we mentioned above.
Features of Gravestone Doji:
- May appear in both uptrend and downtrend
- Short body
- The upper shadow is long but there is no lower or very short shadow
When appearing at the bottom of a downtrend, the Gravestone Doji closely resembles the Inverted Hammer candle. When appearing at the top of an uptrend, Gravestone Doji closely resembles Shooting Star candles. However, the signal of this Doji candle is not as strong as the two candlestick patterns we mentioned above.
Psychological movements of Dragonfly Doji or Gravestone Doji are similar to ordinary Doji candles.
Trading guide with Dragonfly Doji and Gravestone Doji models
Dragonfly Doji and Gravestone Doji are two opposing candle patterns. So for brevity, we will guide how to deal with Dragonfly Doji, for Gravestone we just need to understand the opposite.
As mentioned, the Dragonfly pattern can appear at the top of both the uptrend and the bottom of the downtrend. However, the use of this candlestick pattern in each trend is different, we will take a closer look at the following:
Dragonfly Doji in an uptrend
In an uptrend, the Dragonfly candle shows a weak reversal signal. In the experience of professional traders, you should wait for a few more candles to analyze price action more closely. You can also use other technical indicators to confirm additional signals.
Below is an example of a Bitcoin cryptocurrency chart. There is a Dragonfly Doji candle appearing in an bull market.
To see if this Doji candle is creating a reversal signal, analyze further. In front of our Doji candle is a relatively strong bearish candle, thus this Dragonfly Doji candle acts as a defense, preventing the price from falling further. Not just that, the next candle is a green candle, confirming that the uptrend has not reversed. In conclusion, the Dragonfly Doji here plays a supporting role and the market continues to rise.
Dragonfly Doji in a downtrend
Dragonfly Doji exerts a signal of reversal in a strong downtrend rather than an uptrend. Especially if the candlestick pattern is right at the support area or when the technical indicators are in the oversold zone, the signal of reversal will be stronger.
Entry point command
Using only the Dragonfly Doji pattern to enter commands would be very dangerous. Therefore, you should analyze other indicators or check divergence signals. You can also wait for the next confirmation candle to increase the probability of a reversal.
Stop loss
A stop is placed at the bottom of the Doji if it is trading upwards or on the nearest top if trading on a downward trend. However, for long-tail Doji with too large shadows, you should set a stop loss at ½ or ⅔ of that Doji.
Profit-taking point
This model does not specify where the profit taking is. We can take profits at the nearest support / resistance levels with the entry price.
Epilogue
Through two articles on the Doji model, we are confident that you understand the characteristics and how to use this candlestick pattern. Technical analysis does not give a 100% probability of success, so you should combine multiple factors analysis and use a reasonable, safe trading strategy.
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Author: Tin Nguyen
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