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Dragonfly Doji

What Is a Dragonfly Doji Candlestick?

A Dragonfly Doji is a type of candlestick pattern that can signal a potential reversal in price to the downside or upside, depending on past price action.

It is formed when the asset’s high, open, and close prices are the same.

The long lower shadow suggests that there was aggressive selling during the period of the candle, but since the price closed near the open, it shows that buyers were able to absorb the selling and push the price back up.

Understanding the Dragonfly Doji Candlestick

A Dragonfly Doji can occur after a price rise or a price decline.

Following a downtrend, the dragonfly candlestick may signal a price rise is forthcoming.

Conversely, following an uptrend, it shows that more selling is entering the market, and a price decline could follow.

In both cases, the candle following the Dragonfly Doji needs to confirm the direction.

The Dragonfly Doji pattern does not occur frequently, but when it does, it is a warning sign that the trend may change direction.

Following a price advance, the dragonfly’s long lower shadow shows that sellers were able to take control for at least part of the period.

While the price ended up closing unchanged, the increase in selling pressure during the period is a warning sign.

The candle following a potentially bearish dragonfly needs to confirm the reversal by dropping and closing below the Dragonfly Doji’s close.

If the price rises on the confirmation candle, the reversal signal is invalidated as the price could continue rising.

Traders typically enter trades during or shortly after the confirmation candle completes.

If entering long on a bullish reversal, a stop loss can be placed below the low of the dragonfly.

If entering short after a bearish reversal, a stop loss can be placed above the high of the dragonfly.

Example of How to Use the Dragonfly Doji

Dragonfly dojis are very rare because it is uncommon for the open, high, and close to be exactly the same.

For example, a Dragonfly Doji may occur during a sideways correction within a longer-term uptrend.

In such a case, the dragonfly doji moves below the recent lows but then is quickly swept higher by the buyers, signaling that the price is likely to continue higher.

The example shows the flexibility that candlesticks provide.

The price might not be dropping aggressively coming into the dragonfly, but the price still drops and then is pushed back higher, confirming the price was likely to continue higher.

Looking at the overall context, the dragonfly pattern and the confirmation candle signaled that the short-term correction was over and the uptrend was resuming.

Dragonfly Doji vs. Gravestone Doji

A Gravestone Doji occurs when the low, open, and close prices are the same, and the candle has a long upper shadow.

The Gravestone Doji looks like an upside-down “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.

Limitations of Using the Dragonfly Doji

The Dragonfly Doji is not a common occurrence, and it is not a reliable tool for spotting most price reversals.

When it does occur, it isn’t always reliable either.

There is no assurance that the price will continue in the expected direction following the confirmation candle.

The size of the dragonfly coupled with the size of the confirmation candle can sometimes mean the entry point for a trade is a long way from the stop loss location.

This means traders will need to find another location for the stop loss, or they may need to forgo the trade since too large of a stop loss may not justify the potential reward of the trade.

Concluding Thoughts

The Dragonfly Doji is a unique and valuable candlestick pattern that can signal potential reversals in the market.

Its rarity and the significant meaning behind its formation make it a powerful tool for traders when it does appear.

However, due to its limitations and the potential for false signals, it is essential to use the Dragonfly Doji in conjunction with other technical indicators and confirmation candles to increase the likelihood of a successful trade.

Understanding the context in which the Dragonfly Doji forms, along with careful risk management, can help traders make more informed decisions when this pattern emerges.

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Gravestone Doji

What Is a Gravestone Doji?

The term gravestone doji refers to a bearish indicator commonly used in trading by technical analysts.

A gravestone doji is a bearish reversal candlestick pattern formed when the open, low, and closing prices are all near each other with a long upper shadow.

This long upper shadow suggests that the bullish advance at the beginning of the session was overcome by bears by the end of the session.

This pattern often precedes a longer-term bearish downtrend.

Understanding the Gravestone Doji

A gravestone doji is a visual indicator used in technical analysis to signal a potential bearish reversal.

It resembles an inverted T, with the open, low, and closing prices being close to one another, and a long upper shadow extending above them.

For this pattern to be valid, the open, low, and closing prices must be very close to each other, and the upper shadow must be relatively long, indicating a failed bullish advance.

The market narrative suggests that bulls initially push prices higher, but bears ultimately drive the price back down to near the opening level by the session’s close, indicating a loss of bullish momentum.

Although the gravestone doji can sometimes be found at the end of a downtrend, it is more commonly seen at the end of an uptrend.

Traders typically wait for the next candle to confirm the reversal before acting on a gravestone doji.

Trading the Gravestone Doji

Traders often use the gravestone doji as a signal to exit long positions or initiate short positions.

However, it’s important to use this candlestick pattern in conjunction with other forms of technical analysis for confirmation.

For example, traders might look at the volume during the session or use technical indicators like the relative strength index (RSI) or moving average convergence divergence (MACD) to confirm the pattern’s reliability.

A typical strategy might involve placing a stop-loss just above the upper shadow of the gravestone doji to manage risk.

The pattern is more effective when it occurs after a strong uptrend, and its significance increases with higher trading volumes.

Gravestone Doji vs. Dragonfly Doji

The opposite of a gravestone doji is a dragonfly doji.

While the gravestone doji has a long upper shadow and signals a potential bearish reversal, the dragonfly doji has a long lower shadow and may signal a bullish reversal.

Both patterns reflect indecision in the market, but they occur in different contexts.

The dragonfly doji often appears after a downtrend and suggests that bears have lost control, potentially allowing bulls to take over.

Limitations of a Gravestone Doji

While the gravestone doji can be a useful tool for identifying potential market reversals, it has limitations.

The pattern’s reliability increases when confirmed by other technical indicators or volume analysis, but it should not be used in isolation.

Additionally, the gravestone doji does not provide precise entry and exit points, so traders must use other tools and strategies to manage their trades effectively.

Concluding Thoughts

The gravestone doji is a valuable tool in the technical analyst’s toolkit, signaling potential bearish reversals in the market.

However, like all technical patterns, it should be used in conjunction with other indicators and analysis techniques to confirm its signals and make informed trading decisions.

Understanding how to identify and trade the gravestone doji can help traders minimize losses and capitalize on market trends, but it’s essential to remain cautious and use comprehensive strategies to manage risks effectively.

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Long-legged Doji (Rickshaw Man Doji)

What Is Rickshaw Man?

The rickshaw man is a type of long-legged doji candlestick where the body is found at or very near the middle of the candle.

This pattern signals indecision in the marketplace, as indicated by its long upper and lower shadows and a small real body near the center of the candle.

rickshaw man

Understanding Rickshaw Man

A candlestick shows the high, low, open, and close prices.

In the case of the rickshaw man, the open and close prices are at or very close to the same level, creating a doji.

The high and low are far apart, leading to long shadows on the candlestick.

This formation indicates that both bulls and bears exerted control over a security’s price at different times during the same period, resulting in significant volatility but no clear directional movement by the close.

The dynamics of the rickshaw man suggest indecision in the market.

In some contexts, this pattern might represent a period of consolidation, suggesting the continuation of a previous trend.

In other cases, it might indicate indecision at the end of a bullish run-up, potentially signaling a market reversal.

Traders may choose to bet on a continuation or reversal based on the context, but in many instances, they may prefer to wait until a clearer chart pattern or price trend emerges.

The rickshaw man, like all long-legged doji patterns, indicates that the forces of supply and demand are nearing equilibrium.

While this pattern can represent a security’s movement over any timeframe, it is generally more significant on longer-term charts with more participants contributing to its formation.

When analysts use the rickshaw man in conjunction with other technical indicators, they are more likely to identify reliable trading signals.

For example, if the price is in an overall uptrend but has recently pulled back, a rickshaw man pattern coupled with an oversold stochastic making a bullish crossover could signal that a bottom to the pullback is near.

Once the price starts moving up, the pattern and indicator signals are confirmed.

Rickshaw Man Limitations

A rickshaw man candlestick signals indecision, but other forms of technical analysis are typically required to indicate whether this is good, bad, or insignificant.

If a trade is taken based on the rickshaw man candlestick, there is no inherent profit target, so it is up to the trader to determine where to take profit if the entry proves profitable.

The pattern occurs frequently, especially when price action is already choppy.

Therefore, traders must look for the pattern only in specific contexts that enhance the pattern’s reliability if they opt to use it.

Concluding Thoughts

The rickshaw man candlestick pattern serves as an indicator of market indecision and can be a useful tool for traders when combined with other technical analysis methods.

However, due to its frequent occurrence and lack of a clear directional signal, it should not be relied upon in isolation.

Traders are advised to use the rickshaw man in conjunction with other indicators and patterns to improve the accuracy of their trading decisions and to carefully assess the broader market context before acting on this pattern.

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Spinning Top

What Is a Spinning Top Candlestick?

A spinning top is a candlestick pattern with a short real body that’s vertically centered between long upper and lower shadows.

The candlestick pattern represents indecision about the future direction of the asset, meaning that neither buyers nor sellers could gain the upper hand.

A candlestick pattern forms when buyers push the price up during a given time period, and sellers push the price down during the same time period, but ultimately the closing price ends up very close to the open.

After a strong price advance or decline, spinning tops can signal a potential price reversal if the candle that follows confirms.

A spinning top can have a close above or below the open, but the two prices are always close together.

spinning top

What Does a Spinning Top Candlestick Tell You?

Spinning tops are a sign of indecision in the asset; the long upper and lower shadows indicate there wasn’t a meaningful change in price between the open and close.

The bulls sent the price sharply higher, and the bears sent the price sharply lower, but in the end, the price closed near where it opened.

This indecision can signal more sideways movement, especially if the spinning top occurs within an established range.

It can also signal a possible price reversal if it occurs following a price advance or decline.

Sometimes spinning tops may signal a significant trend change.

A spinning top that occurs at the top of an uptrend could be a sign that bulls are losing their control, and the trend may reverse.

Similarly, a spinning top at the bottom of a downtrend could signal that bears are losing control and bulls may take the reins.

In any case, confirmation helps clarify what the spinning top is saying.

The confirmation comes from the next candle.

If a trader believes a spinning top after an uptrend could result in a reversal to the downside, the candle that follows the spinning top should see prices drop.

If it doesn’t, the reversal is not confirmed, and the trader will need to wait for another trade signal.

If the spinning top occurs within a range, this indicates indecision is still prevalent, and the range will likely continue.

The candle that follows should confirm, meaning it stays within the established sideways channel.

Spinning tops are a common candlestick pattern, which means they work best in conjunction with other forms of technical analysis.

For example, traders may look at technical indicators, like the moving average convergence-divergence (MACD) or relative strength index (RSI), for signs of a reversal before taking a trade based on a spinning top.

Indicators or other forms of analysis, such as identifying support and resistance, may aid in making decisions based on candlestick patterns.

Limitations of Using the Spinning Top

Spinning top candlesticks are common, which means many of the patterns witnessed will be inconsequential.

Since assets often have periods of indecision, this makes sense.

Spinning tops frequently occur when the price is already moving sideways or is about to start.

As for forecasting reversals, the common nature of spinning tops also makes this problematic.

Many spinning tops won’t result in a reversal.

Confirmation is required, but even with confirmation, there is no assurance the price will continue in the new direction.

Trading around a spinning top can also pose some problems since the candle can be quite large from high to low.

If confirmation comes after a spinning top and a trade is taken, placing a stop loss above or below the high/low of the spinning top could result in a large risk, which doesn’t justify the potential reward.

Assessing the reward potential of a spinning top trade is also difficult since the candlestick pattern doesn’t provide a price target or exit plan.

Traders need to utilize other candlestick patterns, strategies, or indicators to find a profitable exit.

Concluding Thoughts

The spinning top candlestick pattern is a useful indicator of indecision and potential market reversal, but it should not be relied upon in isolation.

Given its common occurrence, traders should seek confirmation from subsequent candles and integrate additional technical analysis tools to support their trading decisions.

When used as part of a broader strategy, the spinning top can provide valuable insights into market sentiment and potential price movements, helping traders navigate both trends and ranges effectively.

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Bullish Harami Cross & Bearish Harami Cross

What Is a Harami Cross?

A harami cross is a Japanese candlestick pattern that consists of a large candlestick that moves in the direction of the trend, followed by a small doji candlestick.

The doji is completely contained within the prior candlestick’s body.

The harami cross pattern suggests that the previous trend may be about to reverse.

The pattern can be either bullish or bearish.

The bullish pattern signals a possible price reversal to the upside, while the bearish pattern signals a possible price reversal to the downside.

harami cross

Understanding the Harami Cross

A bullish harami cross pattern forms after a downtrend.

The first candlestick is a long down candle (typically colored black or red) which indicates that the sellers are in control.

The second candle, the doji, has a narrow range and opens above the previous day’s close.

The doji candlestick closes near to the price it opened at.

The doji must be completely contained within the real body of the previous candle.

The doji shows that some indecision has entered the minds of sellers.

Typically, traders don’t act on the pattern unless the price follows through to the upside within the next couple of candles.

This is called confirmation.

Sometimes the price may pause for a few candles after the doji, and then rise or fall.

A rise above the open of the first candle helps confirm that the price may be heading higher.

A bearish harami cross forms after an uptrend.

The first candlestick is a long up candle (typically colored white or green) which shows buyers are in control.

This is followed by a doji, which shows indecision on the part of the buyers.

Once again, the doji must be contained within the real body of the prior candle.

If the price drops following the pattern, this confirms the pattern.

If the price continues to rise following the doji, the bearish pattern is invalidated.

Harami Cross Enhancers

For a bullish harami cross, some traders may act on the pattern as it forms, while others will wait for confirmation.

Confirmation is a price move higher following the pattern.

In addition to confirmation, traders may also give a bullish harami cross more weight or significance if it occurs at a major support level.

If it does, there is a greater chance of a larger price move to the upside, especially if there is no nearby resistance overhead.

Traders may also watch other technical indicators, such as the relative strength index (RSI) moving up from oversold territory, or confirmation of a move higher from other indicators.

For a bearish harami cross, some traders prefer waiting for the price to move lower following the pattern before acting on it.

In addition, the pattern may be more significant if it occurs near a major resistance level.

Other technical indicators, such as an RSI moving lower from overbought territory, may help confirm the bearish price move.

Trading the Harami Cross Pattern

It is not required to trade the harami cross.

Some traders use it simply as an alert to be on the lookout for a reversal.

If already long, a trader may take profits if a bearish harami cross appears and then the price starts dropping after the pattern.

Or, a trader in a short position may look to exit if a bullish harami cross appears and then the price starts rising shortly after.

Some traders may opt to enter positions once the harami cross appears.

If entering long on a bullish harami cross, a stop loss can be placed below the doji low or below the low of the first candlestick.

A possible place to enter the long is when the price moves above the open of the first candle.

If entering a short, a stop loss can be placed above the high of the doji or above the high of the first candle.

One possible place to enter the trade is when the price drops below the first candle open.

Harami cross patterns don’t have profit targets.

Therefore, traders need to use some other method of determining when to exit a profitable trade.

Some options include using a trailing stop loss, finding an exit with Fibonacci extensions or retracements, or using a risk/reward ratio.

Concluding Thoughts

The harami cross pattern is a significant indicator for traders looking to identify potential reversals in market trends.

While it can signal a change in direction, it’s essential to use it in conjunction with other technical indicators and strategies to confirm its validity.

Whether trading a bullish or bearish harami cross, proper risk management through the use of stop-loss orders and careful analysis of market conditions is crucial.

Incorporating the harami cross into a broader trading strategy can enhance decision-making and potentially improve trading outcomes.

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