Dragonfly Doji: Difference between revisions

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<ul>
<ul>
<li>[[Inverted hammer]]</li>
<li>[[Price pattern]]</li>
<li>[[Gravestone doji]]</li>
<li>[[Gravestone doji]]</li>
<li>[[Long-legged doji]]</li>
<li>[[Long-legged doji]]</li>
<li>[[Bull flag]]</li>
<li>[[Bull flag]]</li>
<li>[[Price pattern]]</li>
<li>[[Bullish divergence]]</li>
<li>[[Three Black Crows]]</li>
<li>[[Uptrend]]</li>
<li>[[Bearish divergence]]</li>
<li>[[Bearish divergence]]</li>
<li>[[Uptrend]]</li>
<li>[[Inverted hammer]]</li>
<li>[[Continuation Pattern]]</li>
<li>[[Three white soldiers]]</li>
</ul>
</ul>
}}
}}
'''Dragonfly [[Doji]]''' is a kind of candlestick pattern that can inform about a potential reversal in [[price]] to the upside or downside, depending on past price [[action]]. According to Fred K. H. Tam "The Dragonfly is formed when the open, close, and high are at the same price during an average or larger daily range. It has a long lower shadow" (F. K. H. Tam 2015, s. 47).
'''Dragonfly [[Doji]]''' is a kind of candlestick pattern that can inform about a potential reversal in [[price]] to the upside or downside, depending on past price [[action]]. According to Fred K. H. Tam "The Dragonfly is formed when the open, close, and high are at the same price during an average or larger daily range. It has a long lower shadow" (F. K. H. Tam 2015, s. 47).


Revision as of 21:13, 19 March 2023

Dragonfly Doji
See also

Dragonfly Doji is a kind of candlestick pattern that can inform about a potential reversal in price to the upside or downside, depending on past price action. According to Fred K. H. Tam "The Dragonfly is formed when the open, close, and high are at the same price during an average or larger daily range. It has a long lower shadow" (F. K. H. Tam 2015, s. 47).

General Interpretation

The Dragonfly Doji does not happen often, but when it does it is an information that trend may change direction. In the opinion of Fred K. H. Tam: "Like all doji, the Dragonfly Doji can be interpreted both as a reversal or a continuation pattern. The important criterion is to identify where the doji is found. If the doji is found after a rally or at a high price area, it is generally viewed as a potential bearish reversal pattern. If it is found after a downtrend or at a low price area, it has potential bullish reversal implications. But if found in a sideways market, it is viewed as neutral" (F. K. H. Tam 2015, s. 47).

According to Michael C. Thomsett, the dragonfly doji is almost always understood as a bullish signal due to the long lower shadow. Nevertheless, it may also work as bearish information with aspect at the top of an uptrend(M. C. Thomsett 2012, s. 80 - 82).

Dragonfly Doji (bear)

Dragonfly doji (bear)is a type of dragonfly occurring at the top of an uptrend. This candlestick has a long lower shadow and no upper shadow. We can normally see it in the opposite position, at the bottom of a downtrend and representing a bullish resupination. The bearish edition subsists due to the context of placement. When the session is continuing, prices open and close at or close to the same level and a sell-off appears during the day, only to bounce to the level of the opening price. In a bearish framework, it informs us about the possibility of lost momentum among the bulls. Nevertheless, this candlestick has to be viewed with warning. The bearish dragonfly doji is comparable to the hanging man but the most important difference is that the hanging man is likely to have some degree of a real body, usually estimated to a square shape rather than the longer rectangle. A dragonfly doji often has no real body (M. C. Thomsett 2012, s. 80).

Dragonfly Doji (bull)

As we can read in a literary work of Michael C. Thomsett, dragonfly doji (bull) is a doji with a long lower shadow and little or no upper shadow. It functions like a bull reversal when it occurs after an extended downtrend. The long lower shadow shows that sellers tried to move the price lower but lacked strength, and momentum shifted to buyers instead. This one-session signal can be a bullish reversal or bearish continuation. Approval has to be required before acting on the single-stick indicator. In a bearish continuation, the failed try by sellers to move prices lower affects momentum only during the session but does not stop the price from continuing downward. The form and location of the bullish dragonfly doji is nearly the same as the hammer, a bullish reversal signal. However, the hammer may adopt some real body, while the dragonfly has little or no real body (M. C. Thomsett 2012, s. 82).

The Difference Between the Dragonfly Doji and the Gravestone Doji

The most important difference between the dragonfly doji and the gravestone doji is that the latter appears when the low, open and close prices are equal and the candle has a long upper shadow. The gravestone is similar to upsidedown "T". The implications for the gravestone are the same as the dragonfly. Both indicate possible trend reversals but must be confirmed by the candle that follows (S. Nison 2004 s. 44 - 45).

Examples of Dragonfly Doji

  • A classic example of a Dragonfly Doji is a candlestick in which the open, close, and high are all at the same price. This candlestick indicates that the bulls were able to immediately push the price up to the high, but then the bears stepped in and drove the price back down to the open. This indicates a potential reversal in price to the downside.
  • Another example of a Dragonfly Doji is a candlestick in which the open, close, and low are all at the same price. This candlestick indicates that the bears initially drove the price down to the low, but then the bulls stepped in and pushed the price back up to the open. This indicates a potential reversal in price to the upside.

Advantages of Dragonfly Doji

The Dragonfly Doji pattern can be a valuable indicator of market sentiment, allowing traders to identify potential reversals in price direction. Some advantages of this candlestick pattern are:

  • It is easy to spot - the Dragonfly Doji is formed when the open, close, and high are all at the same price, so it is easy to recognize.
  • It can indicate a potential trend change - if the Dragonfly Doji appears after a prolonged trend, it can be a sign of a potential reversal.
  • It can indicate a trend continuation - if the Dragonfly Doji appears after a short-term trend, it can indicate that the trend may continue.
  • It can be used in multiple time frames - the Dragonfly Doji works on multiple time frames, so it can be used to identify potential reversals or trend continuations on different time frames.
  • It can be used with other indicators - the Dragonfly Doji can be combined with other indicators to confirm a potential reversal or trend continuation.

Limitations of Dragonfly Doji

The Dragonfly Doji is a candlestick pattern that can potentially signal a reversal in price. However, it has several limitations which should be considered before making any investment decisions. These limitations include:

  • The Dragonfly Doji is not completely reliable and can be subject to false signals. It is important to consider the longer-term price trend and other technical indicators before making any decisions.
  • The Dragonfly Doji appears when the open, close and high prices are at the same level, meaning that the body of the candle is very small. This means that the pattern can be easily missed, especially on a chart with a longer timeframe.
  • The Dragonfly Doji does not always indicate an imminent reversal in price. It can also indicate that the price is consolidating, which means that the price could remain in the same range for some time.
  • The Dragonfly Doji can be present for both uptrends and downtrends, so it is important to consider the overall trend before making any decisions.

Overall, the Dragonfly Doji is a useful tool for technical analysis, but it has several limitations that should be taken into consideration.

Other approaches related to Dragonfly Doji

A Dragonfly Doji can be viewed through several other approaches as well. These include:

  • Technical analysis: Technical analysts use this pattern to identify potential reversals in the price of a stock or other asset by looking at the pattern's shape and size.
  • Candlestick charting: Candlestick charting is a type of charting that uses the shape and size of a candlestick to analyze the direction of the price of a stock or other asset.
  • Support and resistance levels: Support and resistance levels can be identified using the Dragonfly Doji pattern. This can help traders to identify potential buy and sell points in the market.
  • Price action trading: Price action trading is a type of trading strategy that relies on analyzing the price movement of a security or asset. The Dragonfly Doji can be used to identify potential reversal points in the market.

In conclusion, the Dragonfly Doji is a powerful tool for traders to identify potential price reversals and support and resistance levels in the market. It can also be used in combination with other technical analysis tools and strategies to better inform trading decisions.

References

Author: Patryk Kozioł

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