Dragonfly Doji is a rare phenomenon, it’s also called bullish Doji and use as a bullish reversal pattern. It forms when a price opens and closes at the same point. It explains the market indecision and whole-day trading range.
The formation of the Dragonfly Doji candlestick
The formation of Dragonfly Doji looks like “T”. this long-legged Doji tells the market to open and move down but during the trading session, the buyers push the price all the way up. The following picture shows that the Doji candle has a long bottom tail with no or very small body at the top. Dragonfly Doji hints at bullish reversal and usually forms rarely and cannot be used as confirmed price reversal without confirmation.
Facebook Chart for dragonfly Doji example
On 19th Feb 2019, the Facebook daily chart created a dragonfly doji candle. The following picture shows the during the downtrend a dragonfly doji is formed. As we can see the low price of this candle is 160.41. We want to see price closed above to this candle to consider it as confirmation of change in trend.
How to Trade Dragonfly Doji candle Pattern
Since now we understand its formation. Let’s learn how to trade it with confirmation. Considering the previous example; we have seen the dragonfly Doji has created a long tail at the bottom with a low price is 160.41. We want the next market to close above the body of the Doji candle. This triggers a bullish sentiment.
we noticed on 13th day of trading, the price came all the way down to Doji candle to test its low’s. The price could not close below 160.41. The closing price of the red candle was 160.47 and that was above the Doji’s low. Therefore the market reverse after and bullish move started.
As mentioned, it is rare to see the Doji formation and usually, traders wait for a confirmation candle to change bias. Just because it’s a rarity, it’s not something traders actively look for trading on higher timeframes. Similarly, the “T” formation shows the entry price way above to stop-loss price. Traders want to see a small stop loss rather than a long gap between the trade price and stop-loss price.
We will prefer hammer candles and shooting star candles as they appear more frequently and provide more trading opportunities.