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Tutorial on Gravestone Doji Candlestick Pattern
Gravestone Doji is a bearish reversal candlestick pattern that forms at an uptrend. This pattern is formed when the open price is equal to its low & close price, with a long upper shadow made by its high price. Gravestone candlestick should occur at an uptrend or possible resistance level, as it indicates a swing rejection.
How to Identify the Gravestone Doji
Gravestone Doji is a single candlestick pattern.
Criteria 1- Candle price closed at the same or near level of candle opening price.
Criteria 2- It has little or no lower shadow.
Criteria 3- Long upper shadow.
What does a Gravestone Doji Candlestick Pattern Indicate ?
A gravestone doji candle is seen as a more reliable trend reversal pattern when it forms during an uptrend. Because the price reached the resistance level during that trading period, which suggests that bears are currently in action and driving the price downward, it is regarded as being more reliable. CCI,
MFI,
RSI, or any other overbought/oversold technical indicators can be used by traders as further confirmation. When using these indicators, traders should keep in mind that, along with the formation of gravestone doji candlestick pattern technical indicators, for example an overbought/oversold indicator should indicate that a particular stock is in
overbought territory or near overbought level.
Points to Consider before Trading with Gravestone Doji Candlestick Pattern
Gravestone Doji candlestick pattern is a bearish reversal pattern, so it's important to consider the current trend of the market as well.
Gravestone Doji candle is considered more reliable when it is formed after sustained uptrend or at near resistance level, as it signifies shift in market sentiments. Gravestone candle's high indicates swing rejection. In other words, it shows that bulls take price more higher as they are in charge for a long time but bears get activated taking price again to the same level, where it opens.
The Gravestone Doji's formation in regard to important support and resistance levels might offer additional context to the pattern's interpretation.
Appearance of Gravestone Doji at the sideways market has no significance.
Gravestone Doji is only one component of technical analysis and should not be used in isolation. Before making a trading choice, it is important to consider a number of factors.
So using other indicators such as moving averages, RSI, CCI or other indicators traders also can look at trendlines to understand market conditions.
Traders should be good at risk management while trading in the market, specially purely based on price action or
candlestick patterns. It's important to have well defined risk management plans and understanding of risk:reward ratio & using
trailing stop loss.
Traders should wait for the appearance of the next candle after gravestone doji pattern formation, as it can be a trend continuation instead of reversal.
Trading with Gravestone Doji Candlestick Pattern
Gravestone Doji in Price Action Way
When you're trading with the Gravestone Doji candlestick pattern, then always keep in mind that it should form at uptrend or near resistance level. If it is formed at resistance level then it indicates a swing rejection. Never ignore the trading
volume, it plays a significant role for trading decisions. The next candle after the formation of gravestones should be bearish with good selling volume. This confirms the trend reversal. Aggressive traders can enter immediately after formation of gravestone but it can be risky as there is always possibility of trend continuation. Conservative traders should wait for the next candle formation, and take a short position at the close price of the next bearish candle. Aggressive traders can put stop loss at the high of gravestone doji. Trailing stop loss is more suitable here for conservative traders.
Advantages & Disadvantages Gravestone Doji Candlestick Pattern
Advantages of Gravestone Doji Candlestick Pattern
- Clarity- Gravestone doji candle gives clear indications & easily can spot by anyone.
- Accuracy- This pattern is generally accompanied by increased volume, which provides strong potential for trend reversal.
- Reliability- This pattern is considered as one of the most reliable candlestick patterns.
Disadvantages of Gravestone Doji Candlestick Pattern
- Signal- Even if gravestone doji is a reliable candle, sometimes it can generate false signals.
- Confirmation- This is a single candle formation pattern. It is basically confirmed by the next candle formation or technical indicators.
- Market Condition- Gravestone Doji patterns effectiveness is highly influenced by the market trend and market conditions.
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