Contextually, when this occurs at the highs of an extended uptrend, we interpret this as exhaustion. This gives us the confidence to take a short position when all criteria are confirmed. For this reason, its success rate is greatly increased when the candle forms at a market top. Joe Marwood is an independent trader and investor specialising in financial market analysis and trading systems. He worked as a professional futures trader for a trading firm in London and has a passion for building mechanical trading strategies.

Traders should consider the overall market context and broader trends when interpreting Doji patterns. As with any trading tool, it’s essential to practice and experiment to enhance trading gravestone doji decisions. All ranks are out of 103 candlestick patterns with the top performer ranking 1. “Best” means the highest rated of the four combinations of bull/bear market, up/down breakouts.

What’s the Opposite of a Gravestone Doji?

Third, the gravestone doji tends to be a relatively accurate method of identifying reversals. Finally, it can easily be used together with other technical analysis tools. The second step is to identify when the gravestone doji pattern happens. As you can see, the price reversed when the Doji pattern happened.

Gravestone doji have no lower shadow and a long upper shadow, which suggests that bears regained control over the price after strong buying pressure. When they occur after an uptrend, these candlestick patterns can predict a bearish reversal, especially if they occur on higher than average volume. As shown above, the gravestone doji pattern forms when a candlestick has a long upper shadow and a small body at the lower side. It forms when an asset’s open, low, and close prices are the same. It happens when buyers have enough momentum to push the price higher but they then run out of steam. The lack of a body on the candle is the reason why the books say pin bars have a higher chance of causing a reversal than dragonfly and gravestone doji candlesticks.

Strategy 1: Pullbacks On Naked Charts

The one caveat, as we mentioned earlier, is that for each Gravestone Doji, your level of risk will vary depending on the length of the candlestick wick. Thus, the short signal comes on the second candle after the doji with a break and close below the trigger line. Our job as traders is to use these price analysis tools to help us take advantage of opportunities like this. The psychology behind the candle is that the bulls were in control in the beginning.

Day traders may also put a stop-loss just above the upper shadow at around $5.10, although intermediate-term traders may place a higher stop-loss to avoid being stopped out. With the Dragonfly Doji, the opening and closing prices for the trading session are indicated by a thin horizontal line at the top of the candle wick. This pattern generally shows that the bulls had control of the trading session. Although some bearish activity happened, resulting in the long lower wick, bullish sentiments prevailed at the start and end of the period in question.

Doji Candle Types: Dragonfly, Gravestone & More

Its open price and the close and low of the day are all pretty much near each other. The first step of trading with the gravestone and all other types of doji patterns is to identify a trending asset. This is because these candlestick patterns do not provide quality signals in a ranging market. Another reason I think gravestone and dragonfly doji’s should be treated the same as bullish and bearish pin bars is because traders get trapped in losing trades on the wick of the candle. Two candlestick patterns which have a lot in common with pin bars both in terms of their construction and what they show in the market are the dragonfly and gravestone doji.

With over a quarter-million retail traders in the HaiKhuu Trading communities, we have been able to help out hundreds of thousands of stock traders. TradingView is currently providing a 30-day free trial for their premium subscriptions. This trial gives you access to advanced features, including real-time data, custom alerts, and priority customer support. Additionally, by using my link, you can receive $30 off your subscription after the free trial ends. Well, at this current phase of the Gravestone Candlestick pattern, the Bears seem to be finally applying some pressure on the Bulls.

How to Read a Candlestick Chart

Ultimately, we were correct and the price breaks down further to make new daily lows. We exit the trade after we see two bullish candles in a row, our signal to exit. The price action is very similar to our last trading example, but in this case the stock does not reverse after hitting our target, but rather continues lower. Our stop loss should be placed above the high of the gravestone doji to ensure we protect ourselves if the trade goes against us. The next candle after the doji breaks the trigger line, therefore we open a short position.

In particular, when it emerges after a bull run, most traders will take the Gravestone Doji as an indicator that a bearish reversal is about to take place, as in the chart below. This shows a Gravestone Doji occurring immediately before three bearish sessions, followed by a short pullback and a steeper drop. They display the highest and lowest price for the trading session, indicated by the thin “wicks” at the candlestick’s top and bottom. They also tell you the opening and closing price for that session, shown by the candlestick body’s top and bottom. Therefore, you cannot take entries in every gravestone doji pattern formed as a trader because the place/level is so important.

Assuming these confirm a bullish breakout, traders will want to close out shorts and open long positions. For this reason, the Gravestone Doji (or any Doji candle, for that matter) should never be taken as a reliable trading signal in isolation. This is particularly true during lower volume trading sessions, where a lone candle can reveal little about overall market sentiment.