Everything that you need to know about the Dragonfly Doji candlestick pattern is here.
Today you’ll learn:
The Dragonfly Doji is a Japanese candlestick pattern from a special type, the Doji candles.
It’s a bullish reversal pattern.
Usually, it appears after a price decline and shows rejection from lower prices.
The pattern is bullish because we expect to have a bull move after the Dragonfly Doji appears at the right location.
It’s a reversal pattern because before the Dragonfly Doji appears we want to see the price going down, thus it’s also a frequent signal of the end of a trend.
The Dragonfly Doji pattern is also a mirrored version of the Gravestone Doji candlestick pattern.
The Dragonfly Doji candlestick pattern is formed by one single candle.
Here’s how to identify the Dragonfly Doji candlestick pattern:
It looks like this on your charts:
The Dragonfly Doji candlestick pattern may appear a little different on your charts.
The candle may or not have a wick at the top, but if it has, must be small.
Here’s what it may look like on your charts:
To trade the Dragonfly Doji candlestick pattern it’s not enough to simply find a candle with the same shape on your charts.
Let me explain.
What makes a pattern valid is not just the shape, but also the location where it appears.
This means that the same shape appearing at different locations may have different meanings.
When trading the Dragonfly Doji, we want to see the price first going down, making a bearish move.
A Dragonfly Doji appearing after this bearish move is a sign of a possible reversal to the upside.
It looks like this:
Now you’re thinking.
“When do I open my trade?”
It’s simple, the Dragonfly Doji pattern is traded when the high of the candle is broken.
That’s your conservative trigger to go long.
It looks like this:
Now, you also want to protect yourself because when trading things don’t always move as we expect.
And for that, we use a stop loss.
There are several different types of stop losses.
The most common is to use the other side of the pattern to set it.
Like this:
But wait, don’t jump into trading the Dragonfly Doji right yet.
There are a few more things to know.
Ideally, to increase the accuracy, we want to trade the Dragonfly Doji candlestick pattern by combining it with other types of technical analysis or indicators.
Here are a few strategies to trade the Dragonfly Doji pattern.
As a bullish reversal pattern, the Dragonfly Doji is a great pattern to watch for when the price is on an uptrend.
Just wait for a pullback to start, and then spot when the Dragonfly Doji appears.
That often signs the end of the pullback and the start of the new leg to the upside.
Here’s an example:
Support and resistance levels are great places to find price reversals.
Since we are looking for moves to the upside, we want to trade the Dragonfly Doji using support levels.
How does it work:
Here’s an example:
Moving averages are great trading indicators to trade trends.
The idea here is to trade pullbacks to the moving average when the price is on an uptrend.
How does it work:
Like this:
This is a bit different from the other trading strategies.
To find a bullish RSI Divergence we want to see the price on a downtrend first, making lower lows and lower highs.
Here’s how it works:
Like this:
Another popular way of trading the Dragonfly Doji candlestick pattern is using the Fibonacci retracement tool.
Fibonacci shows retracement levels where the price will tend to revert frequently.
Depending on the strength of the trend, different levels are more likely to work better with the Dragonfly Doji pattern. Here you can learn more about the different Fibonacci retracement levels.
Here’s how the strategy works:
Here’s an example:
Pivot Points are automatic support and resistance levels calculated using math formulas.
If you are day trading, the Daily Pivot Points are the most popular, although the Weekly and Monthly are frequently used too.
Here’s how to trade the Dragonfly Doji pattern with Pivot Points:
It looks like this:
According to the Encyclopedia of Candlestick Charts by Thomas N. Bulkowski (link), the Dragonfly Doji candlestick pattern has a success rate of 51%.
Now I want to hear from you.
Do you trade the Dragonfly Doji candlestick pattern?
Let me know in the comments below.
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