Dragonfly Doji Explained & Backtested 2025
This candlestick’s presence is most significant when it appears after a downtrend, preceded by bearish candlesticks. As mentioned above, the hammer and the dragonfly doji pattern are extremely similar. Jay and Julie Hawk are the married co-founders of TheFXperts, a provider of financial writing services particularly renowned for its coverage of forex-related topics. While their prolific writing career includes seven books and contributions to numerous financial websites and newswires, much of their recent work was published at Benzinga. To explore how the dragonfly doji can be used in practice, consider a hypothetical trading scenario of a currency pair like EUR/USD that is engaged in a sustained downtrend.
- It can be a sell signal, especially if it appears near a resistance level.
- The main differences between the patterns are where they appear within the larger context of the trend.
- In January, the price peaked at $1,959.19 before tumbling down to $1,676.61 in March, marking a substantial decline.
- Not all candlesticks shapes earn names—so you should probably check out the ones that do.
In this section, we will discuss the characteristics of a dragonfly doji and how it can be identified. All ranks are out of 103 candlestick patterns with the top performer ranking 1. «Best» means the highest rated of the four combinations of bull/bear market, up/down breakouts. The dragonfly doji is an interesting name for a candle that is supposed to act as a bullish reversal. The 10-day performance after the breakout ranks it 98th out of 103 candles, where 1 is best.
- In the second example, we see the USD/ZAR pair also in a minor downward trend.
- We recommend selling in tranches (i.e., placing at least two target prices) so you can take advantage in case the bullish rally extends past your first target price.
- The Doji patterns do not provide enough information as a trader would like to have to make a decision.
- Make more informed trading decisions by learning about hammer candlesticks and hanging man candles.
- Most importantly, you should combine it with other volume-based indicators like the money flow index and the accumulation and distribution indicator.
What does Green Dragonfly Doji Candlestick Indicate?
It is essential to consider other factors before making a trading decision based on the pattern. Traders and investors should consider volume indicators, moving averages, and other technical indicators to confirm potential trend reversals and make informed trading decisions. Again, the candlestick pattern is neutral in context to direction, and it is up to the analyst or trader to interpret it carefully. Dragonfly Doji candlestick in an uptrend is a downward price reversal warning or indication. It comes with a long downward wick or a lower long shadow, and signals that the bearish trend is strengthening. Oscillators are technical indicators that measure momentum and overbought or oversold conditions in the market.
This helps to prevent false breakout signals that can dragonfly candlestick quickly result in unnecessary losses. When entering into long positions on a bullish Dragonfly Doji reversal, stop-loss orders are placed under the price low of the pattern. Certain traders may use other technical indicators like stochastic, RSI, and volume analysis to confirm a likely price reversal.
Oversold conditions on these indicators can strengthen the bullish reversal signal provided by the pattern, providing traders with added confirmation of the potential shift in market sentiment. The dragonfly doji and the gravestone doji are similar Japanese candlestick patterns but shaped in the opposite direction. Both patterns are similar to pin bars in their construction and the market indicators they provide. However, the primary difference between these two patterns lies in the position of the long shadow.
After a downtrend, when they are found at the support, this can signal a bullish reversal. By letting the trade play out, we can see that the subsequent price action confirmed the bullish reversal. ETH prices ultimately closed above the previous high on increased volume, and the RSI moved into overbought territory, providing strong evidence of a new uptrend.
Step 1: Identify a Valid Dragonfly Doji Pattern
Dragonfly Doji Candlestick also has its limitations as it is uncertain if it would be able to give the trend reversal. This written/visual material is comprised of personal opinions and ideas and may not reflect those of the Company. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions.
Therefore, it is always important to wait for a confirmation to happen before you place a trade. In most cases, the length of the lower shadow is used as an indication of the strength of an upcoming reversal pattern. Top stories, top movers, and trade ideas delivered to your inbox every weekday before and after the market closes.