The dragonfly doji is a Japanese candlestick pattern consisting of only one candle. It is used to identify reversal patterns after a bearish price trend.
This article tells you how to recognize this pattern, what it means, and how to use it.
The Dragonfly Doji is a candlestick pattern used in technical analysis to identify potential trend reversals in the market.
It is recognized by its small body, long lower shadow, and absence of an upper shadow.
It signifies a shift from bearish to bullish sentiment, indicating that buyers are regaining control and potentially leading to a price increase.
This candlestick pattern is characterized by a very small body, a long lower shadow, and no (or a very little) upper shadow. This candlestick pattern resembles a T-shape or the letter "T" flipped upside down.
The opening price (as well as the closing price) are usually at or near the highest price of the session, indicating strong buying pressure.
Look for a small real body, or no real body at all, that is often colored or outlined differently from other candles.
Notice a long lower shadow, indicating that prices dipped significantly during the session but recovered by the end.
No upper shadow or an extremely short one.
The absence of an upper shadow further reinforces the dragonfly-like appearance.
The name "Dragonfly Doji" derives from its resemblance to a dragonfly insect. When you visualize a Dragonfly Doji, the thin body represents the elongated body of the dragonfly, while the long lower shadow resembles its tail.
The absence of an upper shadow in a Dragonfly Doji holds significance due to its implications for market sentiment.
When there is no upper shadow or an extremely short one, it suggests that the high price reached during the session was maintained until the close. This indicates a strong bullish momentum, as buyers were able to push the price up and keep it elevated, without allowing sellers to regain control.
The absence of an upper shadow reinforces the notion that buyers have a firm grip on the market, potentially signaling a trend reversal or a continuation of an upward move.
The Dragonfly Doji is considered a reversal signal, signaling a potential shift in market sentiment from bearish to bullish. When it appears after a prolonged downtrend, it suggests that selling pressure has weakened, and buyers are regaining control.
Traders often interpret the pattern as a sign that the price may start to rise or that a bullish reversal is imminent.
In addition to indicating a trend reversal, this pattern also implies that the session saw significant volatility. It reflects a battle between buyers and sellers, with sellers initially dominating but ultimately losing control as buyers step in to push the price higher.
Buying a stock solely based on this potential reversal pattern is not a good idea. The presence of the pattern should always be considered in combination with other technical elements to better understand the context in which the pattern occurs and to be able to act on it successfully.
The pattern unfolds itself after a short-term downtrend (the long-term trend is bullish since 2023, as shown on the weekly chart )
The Dragonfly Doji occurs right at the SMA20 (blue line) = first confirmation signal
The trendline that connects the bottom and the first swing low also acts as support just below the Dragonfly Doji (green diagonal line) = second confirmation signal
The Dragonfly Doji candlestick is followed by a Bullish Engulfing Candlestick Pattern which makes it a much more trustworthy reversal signal = fourth confirmation signal
For both patterns, both the open, high and close are approximately at the same level. The difference between the two patterns is the location of the shadow.
For the Dragonfly doji, it is visible as a long upper shadow. For the Gravestone doji, there is a long lower shadow.
Both patterns suggest a trend change. One speaks of a dragonfly when the trend change goes from bearish to neutral to bullish. Otherwise, when the trend seems to reverse from bullish to neutral/bearish, it is called a gravestone pattern.
The dragonfly pattern can be used as a screening filter in ChartMill. To do so, open the TA indicators menu on the stock screener page and open the drop-down menu under 'candlestick'. Then select the Dragonfly Doji.
The gravestone doji candle pattern is considered a bearish reversal signal in a bullish trend. More details