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Dragonfly Doji: Understanding This Pattern

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In this guide to understanding the Dragonfly Doji candlestick pattern, we’ll show you what this technical indicator looks like, explain its components, teach you how to interpret it, and discuss its limitations.

What Is a Dragonfly Doji Candlestick Pattern?

The Dragonfly Doji is typically interpreted as a bullish reversal candlestick chart pattern that mainly occurs at the bottom of downtrends. The Dragonfly Doji is a Candlestick pattern that can help traders see where support and demand are located. It can be used with other indicators to identify a possible uptrend.

What Does the Dragonfly Doji Look Like?

The Dragonfly Doji chart pattern is a “T”-shaped candlestick that’s created when the open, high, and closing prices are very similar. Although it is rare, the Dragonfly can also occur when these prices are all the same. The most important part of the Dragonfly Doji is the long lower shadow.

Chart 1: dragon fly doji candlestick chart pattern
Chart 1

Why Is the Long Lower Shadow Important?

The long lower shadow implies that the market tested where demand was located and found it.

Bears Rejected by Bulls

The Dragonfly can mean that bears were able to press prices downward, but an area of support was found at the low of the day and buying pressure was able to push prices back up to the opening price.

Thus, the bearish advance downward was entirely rejected by the bulls.

How to Interpret the Dragonfly Doji

The chart below of the mini-Dow Futures contract illustrates a Dragonfly Doji occurring at the bottom of a downtrend:

Chart 2: dragonfly doji at the bottom of a downtrend
Chart 2

What Does a Dragonfly Doji Mean?

In Chart 2 above of the mini-Dow, the market began the day testing to find where demand would enter the market, found support for the low price, but indicated a possible transition to an uptrend. The Dragonfly should be verified by waiting for trend confirmation on the following day.

Support for the Low Price

The mini-Dow eventually found support at the low of the day, so much support and subsequent buying pressure, that prices were able to close the day approximately where they started the day.

Possible Uptrend Indicated

After a downtrend, the Dragonfly Doji can signal to traders that the downtrend could be over and that short positions could potentially be covered.

Dragonfly Doji vs Gravestone Doji

The bearish version of the Dragonfly Doji is the Gravestone Doji. It looks like an upside-down version of the Dragonfly and it can signal a possible downtrend.

Limitations of the Dragonfly Doji

Although the Dragonfly Doji can indicate the coming of a bullish price change, traders should not rely on this indicator alone:

  • True Dragonflies are very rare since open, high, and closing prices are rarely ever the same.
  • Successful traders will typically wait until the following day to verify the possibility of an uptrend after a Dragonfly.
  • If the Dragonfly appears after a pricing uptrend, it can indicate that a price decline may follow.
  • A Dragonfly accompanied by higher-than-usual volume is more reliable than one with low volume.
  • Other indicators should be used in conjunction with the Dragonfly Doji pattern to determine potential buy signals.

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Below we answer some common questions about Dragonfly Doji patterns.

Is a Doji pattern bullish or bearish?

Doji is a category of technical indicator patterns that can be either bullish or bearish. The Dragonfly Doji is a bullish pattern that can indicate a reversal of a price downtrend and the start of an uptrend. Note that most traders will verify the possibility of an uptrend by waiting for confirmation the following day.

Is Doji a reversal pattern?

Doji patterns indicate a transition in prices or that the market is undecided about the direction prices will take. As a category, they are best described as a transitional pattern rather than a reversal or continuation pattern. Specific types of Doji patterns – like the Dragonfly or the Gravestone – can signal a possible reversal in prices but are best used in conjunction with other indicators.

Further Reading

Learn more about technical analysis indicators, concepts, and strategies including Candlestick Basics & Fibonacci Patterns.

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