The dragonfly doji candlestick pattern represents an indecisive market. It is represented by a long lower tail, a small body with equal open and close prices, and no upper tail.
Dragonfly Doji Candlestick Analysis
The dragonfly doji candlestick pattern provides clues for a possible reversal in trend. When the dragonfly doji appears in an uptrend - look for a pending reversal to the downside, conversely, when the dragonfly doji appears in a downtrend – look for a pending reversal to the upside.
The dragonfly doji candlestick pattern becomes increasingly relevant when the following occur:
- The dragonfly doji is has a long lower tail, a body composed of equal open and close values, and no upper tail.
- It is preceded by a strong trend.
- Confirmation candles are used to confirm the reversal.
- Overbought or oversold indicators confirm a change in market direction.
Forex Trading Ideas
The dragonfly doji may be traded alone, or with a combination of signals and/or indicators. For example:
- Step 1 – Wait for a dragonfly doji to appear during an established trend.
- Step 2 - Confirm the trend reversal with at least one confirmation candle.
- Step 3 – Further confirm overbought or oversold conditions using the RSI – Relative Strength Index*
- Once conditions 1 – 3 are met place an entry order.
*Additional confirmation ideas – confirm the dragonfly doji formation when it appears outside of the Bollinger Band or when the Stochastic Oscillator signals overbought or oversold conditions.
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