Tutorial on Dragonfly Doj Candlestick Pattern

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Tutorial on Dragonfly Doji Candlestick Pattern

What is Dragonfly Doji ?

A dragonfly doji is a bullish reversal candlestick pattern. When the stock's close price is equal to its open with small or no upper shadow but has a long lower shadow then this pattern is considered to be formed. This candlestick pattern looks like a "T" Letter. The lower long shadow indicates that the bears were aggressive during that trading period, but hence the candle closed near or at the same price of opening then it indicates that bulls were also active and pushed the price up again.

How to identify the Dragonfly Doji?

Dragonfly 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 upper shadow.
Criteria 3 - Long lower shadow.

What does a Dragonfly Doji Candlestick Pattern Indicate ?

When a dragonfly doji candle forms at downtrend, then this pattern is considered a more reliable trend reversal. It is considered more reliable because the price hit the support level in that trading period, which indicates that bulls are now active and pushing the price upward. For additional confirmation traders can use CCI, MFI, RSI or any other overbought/oversold technical indicators. When you're using these indicators, traders should keep in mind that along with formation of dragonfly doji indicators should indicate that the particular stock is in oversold territory or near oversold level.

Points to Consider before Trading with Dragonfly Doji Candlestick Pattern

The appearance of dragonfly doji at downtrend indicates potential strong bullish reversal. When this pattern is confirmed by the appearance of the next bullish candle with high volume, then this confirms the trend and becomes more reliable. A situation like this indicates a shift in market sentiment, indicating that the stock traded is now bullish.

For an intraday time frame or small timeframe tick always look at its lower shadow. It must have a longer lower shadow. & when you're looking at a slightly longer period for example 25 days which covers the whole 1 month on Daily (End of the Day) Tick, then the low price of dragonfly doji should also be the lowest price in that 25 days, then it is considered to be a strong potential reversal pattern.

When dragonfly appears at the sideways market then it has no significance.

The Dragonfly Doji candlestick pattern is the inverse of the Gravestone Doji pattern. Lower shadow of this candlestick pattern indicates rejection of lower prices as buyers push prices up again.

Dragonfly with a long lower shadow is considered a more reliable signal compared to a small lower shadow.

Dragonfly doji candlestick pattern is mostly considered more reliable when it forms at the bottom of the downtrend or at the support level.

Dragonfly Doji Candlestick Pattern at Uptrend and Downtrend

1) Dragonfly Doji Candlestick Pattern at Downtrend
When the dragonfly doji candlestick pattern is formed at the downtrend then this candlestick pattern is considered to be bullish. And if it is formed near support level then it becomes a more strong indication of potential reversal as it indicates price rejection. This might be an early indication that the bearish trend is weakening and traders are showing strength around that price level.

To confirm the next movement of the market use other technical indicators along with Dragonfly Doji. Generally, when you are looking at dragonfly doji at downtrend then use overbought/oversold indicators like RSI, CCI, MFI or any other indicators which is your favourite. For example, RSI is rising from oversold zone with or after the formation of the dragonfly doji, then it indicates that trend is likely to reverse.

2) Dragonfly Doji Candlestick Pattern at Uptrend
When the dragonfly doji candlestick pattern formed at an uptrend then it is considered as weak signal for trend reversal, or continuation pattern as buyers remain active. It is depend on the formation of the next candle. This even indicates the indecision between buyers and sellers. Some traders even look at it as a bearish pattern by ignoring the minor difference between the close and open price of the stock. But it depends on the next candle formation, if the next candles form bearish with high volume then it indicates potential bearish reversal. And it can be considered or look like a hanging man candlestick pattern.

Dragonfly Doji Candlestick Pattern Trading Strategies

Traders can use MACD (Moving Average Convergence Divergence) Technical Indicator along with Dragonfly Doji Candlestick Pattern. When Dragonfly doji form at downtrend or at possible support level and MACD line crosses above signal line which is called as MACD Bullish Crossover, then traders can take entry position there. Traders can use Volume as the third confirmation here, if the volume is also increasing after the formation of the dragonfly doji then this is the third confirmation to enter. Traders should keep in mind that, next candle must be bullish, indicating trend reversal.

Dragonfly Doji & MACD Bullish Crossover Strategy

Advantages & Disadvantages of Dragonfly Doji Candlestick Pattern

Advantages of Dragonfly Doji Candlestick Pattern

Dragonfly doji is considered more reliable compared to hanging man candlestick pattern.
When this candlestick pattern is formed at support level or at the bottom of the downtrend this candlestick pattern is considered more reliable.

Disadvantages of Dragonfly Doji Candlestick Pattern

The Dragonfly doji is rarely seen in trading charts.
Dragonfly doji is considered as a bullish reversal signal, but often it gives false signals. Sometimes this pattern formed but the next candle still formed bearish or below the pattern indicating continuation of downtrend.
Relying purely on Dragonfly doji candles can trap traders into false signals, hence it is important to consider other factors or technical indicators in conjunction with dragonfly doji candlestick patterns.

Simple Dragon Fly Doji Screeners are available in public view for free while more comprehensive screeners are available to premium customers.