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Gravestone Doji: How to Trade Using This Reversal Candlestick to Strategize

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

What Is the Gravestone Doji Candlestick Pattern?

The Gravestone Doji candlestick pattern can be interpreted as a bearish reversal when it occurs at the top of uptrends. The Gravestone Doji can help traders see where resistance to a pricing increase is located. It is typically used with other technical indicators to identify a possible uptrend.

What Does a Gravestone Doji Look Like?

The Gravestone Doji chart pattern is an inverted “T”-shaped candlestick that’s created when the open, high, and closing prices are nearly equal. The most important part of the Gravestone Doji is the long higher shadow.

Chart 1: gravestone doji candlestick chart pattern
Chart 1

Why Is the Long Upper Shadow Important?

The long upper shadow is generally interpreted by technicians as meaning that the market is testing to find where supply and potential resistance is located.

Bulls Rejected by Bears

The construction of the Gravestone Doji pattern occurs when bulls press prices upward.

However, an area of resistance is found at the high of the day and selling pressure pushes prices back down to the opening price. Therefore, the bullish advance upward was rejected by the bears.

How to Interpret the Gravestone Doji

Chart 2 below of Altria (MO) stock illustrates a Gravestone Doji that occurred at the top of an uptrend:

Chart 2: gravestone doji marking end of stock trend
Chart 2

What Does a Dragonfly Doji Mean?

In Chart 2 above, the market began the day by testing where support would enter the market. Altria found resistance at the high of the day and subsequently fell back to the opening’s price. After an uptrend, the Gravestone Doji can signal to traders that the uptrend could be over and that long positions could potentially be exited.

Gravestone Doji vs Dragonfly Doji

The reverse of the Gravestone Doji is the bullish Dragonfly Doji. It looks like an upside-down version of the Gravestone and it can signal a coming uptrend.

Limitations of the Gravestone Doji

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

  • True Gravestones are rare since open, high, and closing prices are seldom the same.
  • Successful traders will typically wait until the following day to verify the possibility of a downtrend after a Gravestone.
  • If the Gravestone appears after a pricing downtrend, it can indicate that a price increase may follow.
  • A Gravestone accompanied by higher-than-usual volume is more reliable than one with low volume.
  • Other indicators should be used in conjunction with the Gravestone Doji pattern to determine a potential sell signal. For example, a potential trigger could be a break of the upward trendline support.

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Below we answer some common questions about Gravestone Doji patterns.

Is a Doji bullish or bearish?

Doji Candlesticks are a category of technical indicator patterns that can be either bullish or bearish. The Gravestone Doji is a bearish pattern that can indicate a reversal of a price uptrend and the start of a downtrend. On the other hand, the Dragonfly Doji is a bullish pattern that can indicate an uptrend will occur.

Can a Gravestone Doji be bullish?

If the Gravestone appears after a pricing downtrend, it can indicate that a price increase may follow (a bullish sign). However, since this occurrence is rare, most traders will typically wait until the following day to verify the possibility of a price uptrend after a Gravestone. The Dragonfly Doji is the bullish opposite of a Gravestone.

What does a Doji indicate?

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 for verification.

What does a long-legged Doji mean?

A Doji is formed when the opening price and the closing price of an asset are the same. A long-legged Doji, also known as a “Rickshaw Man,” is a Doji whose upper and lower shadows are much longer than the regular Doji formation, as shown in the image below. This pattern indicates the market’s indecision about pricing direction.

Further Reading

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