Gravestone doji
| Gravestone doji |
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| See also |
Gravestone doji is a reversal pattern that can appear at the end of an uptrend[1]. It usually shows that buyers lose power because they can no longer move the price up and sellers take control of the situation.
Typical market decisions related to gravestone doji are:
- exiting the long positions (limit the losses)
- initiating short positions (playing on losses)
Doji
When the body of the candle is so small that the opening and closing prices are the same, a doji (candlestick line) is formed.
Doji occurs when the opening and closing prices are the same, however, there may be different interpretations that should be considered[2]. The requirement that the opening and closing prices be exactly equal would impose too tight a limit on the data, and the doji would appear very rarely[3]. If the difference between the open and close prices does not exceed a few ticks (the minimum price change), this is more than enough[4].
Doji depend on previous behavior of prices. If there is a single doji, it is a signal that the market is in indecision, and this can not be ignored[5]. Doji means indecision and uncertainty. According to Nison, the doji more accurately indicate a trend change when appearing at the tops, but not in the hollows[6]. This is due to the fact that in order to continue the upward trend in the market, new buyers should appear.
Characteristics of gravestone doji
Gravestone doji is formed on or near the daily minimum[7]. This name, like many other Japanese terms, is associated with various analogies. In this case, it is a gravestone on the grave of those who fell in battle and will become ghosts[8].
The longer the upper shadow, the more bearish is gravestone doji. After the opening, the prices go up only to close the session where it opened, and this point turns out to be the same daily minimum. This cannot be interpreted otherwise than as an inability to grow.
Gravestone doji at the top of the market is a special variant of a shooting star. The only difference is that a shooting star has a small body, and gravestone doji has no body. The Doji headstone is interpreted by market analysts and traders as a reversal signal (most often), or a sign of extreme indecision in the market (less often).
This signal is formed by a candle with a long upper shadow and no lower shadow, which indicates that the price tried to move higher, but failed to do so and closed at a price equal to or very close to the opening price. Also, the candles must be almost non-existent body.
Other doji
Long-legged doji has long upper and lower shadows dividing the daily trading range in half, which clearly reflects the indecision of sellers and buyers[9]. During the day, the market moved up and then fell sharply, or vice versa. Then it closed at the opening price or very close to it. If the opening and closing prices are in the middle of the daily range, the candle is referred to as a long-legged doji.
The opposite of gravestone doji model is the doji called Dragonfly. Dragonfly doji occurs when the market opens and closes at the daily maximum. If it has a longer lower shadow it signals more bullish trend [10]. Like others, this doji usually appears in moments of market reversal.
Four price doji.This rare doji appears when all four price components are the same: open price, close price, high and low are equal. This candle appears when the stock is highly illiquid or the data source has no other prices than the closing price. Futures traders should not confuse this with restricted movement[11]. This doji occurs so rarely that its appearance ought to see whether there are any data errors. However, this candle indicates the complete uncertainty of traders in which direction the market is moving.
Footnotes
- ↑ Reversal Patterns (2019), p. 5
- ↑ Morris G. L. (2012), p. 90
- ↑ Morris G. L. (2012), p. 91
- ↑ Morris G. L. (2012), p. 91
- ↑ Morris G. L. (2012), p. 93
- ↑ Nison S. (1991), p. 179
- ↑ Marshall B. R., Young M. R., Rose L. C. (2006), p. 17
- ↑ Morris G. L. (2012), p. 48
- ↑ Morris G. L. (2012), p. 94
- ↑ Technical Analysis (2019), p. 79
- ↑ Technical Analysis (2019), p. 82
References
- Edwards, R. D., Magee, J., & Bassetti, W. C. (2016)., Technical analysis of stock trends, Published by The International Federation of Technical Analysts
- Jönsson M. (2016)., The Predictive Power of Candlestick Patterns
- Kole E. (2010)., How to Identify and Predict Bull and Bear Markets, Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam
- Marshall B. R., Young M. R., Rose L. C. (2006).,Candlestick technical trading strategies: Can they create value for investors?, Journal of Banking & Finance 30, 2303–2323
- Morris G. L. (2012).,Candlestick charting explained, Published by The McGraw-Hill
- Nison S. (1991)., Beyond Candlsticks. New Japanese Charting Techniques Reveale, Published by John Wilery & Sons
- Reversal Patterns (2019), Reversal Patterns
- Rockefeller B. (2011)., Technical Analysis For Dummies, Published by Wiley Publishing
- Technical Analysis (2019), Technical Analysis
- Think Market (2014).,Introduction to candlestick patterns. Learning to Read Basic Candlestick Patterns
Author: Anastasiia Ilnytska
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