Dragonfly doji

A dragonfly doji is one of the types of doji candle. Its body is a thin line at the very top of the candle and its lower wick is long, so the candle looks like the letter T. The name comes from the shape – a dragonfly with its wings spread.

Inside the period sellers moved price down, often to a new low of the trend. Buyers then took the whole drop back before the close. The lower the wick reached and the closer the close is to the high, the stronger the rejection of lower prices.

• Open and close – equal or a few ticks apart, at the high of the candle.
• Lower wick – long. It makes up almost the whole range of the candle.
• Upper wick – none or very small.
• Location – after a decline, at a new low or at support.
• Size – the range is at least comparable to the candles before it.

After a series of falling candles a dragonfly marks the first period in which sellers could not keep any ground. Price made a new low, found buyers there and closed at the top of the range.

The low of the candle becomes the level to watch. If the next candle closes above the doji's high, traders read the pattern as confirmed. If price closes below the doji's low, the signal has failed and the downtrend goes on.

A wick that dips under a previous low and comes back is also a liquidity sweep of that low.

The same candle after an advance has a different meaning. For the first time in the move sellers pushed price far down within one period, even though buyers recovered it. The shape matches a hanging man, and traders treat it as a warning for long positions, not as a buy signal.

A close below the dragonfly's low on the following candles turns that warning into a bearish signal.

A hammer has a small real body at the top of the candle and a lower wick at least twice the body. A dragonfly doji has no body – open and close are the same price. Both appear after a decline, both show rejection of lower prices and both are traded the same way.

The mirror image is the gravestone doji: open and close at the low with a long upper wick, read as bearish after an advance.

The dragonfly doji is traded as a long signal after a downtrend, with confirmation from the next candle. On Charts you can mark the high and the low of the doji with a rectangle and step through the candles that followed in Replay mode.

• Entry – after a candle closes above the high of the doji. An earlier entry is a break of the high itself.
• Stop – below the low of the doji. A very long wick means a wide stop and a smaller position.
• Target – the nearest resistance level, or the start of the last leg down.
• Filter – a dragonfly at a known support level, on a higher timeframe and with rising volume gets more attention. An oversold RSI is another common filter.

• Buying the candle before it closes – a long lower wick can still turn into a full falling candle.
• Skipping confirmation – in a strong downtrend a dragonfly is often followed by another leg down.
• Buying a dragonfly at the top of an uptrend – there it is a warning, not a bullish sign.
• Placing the stop inside the wick – price often retests part of the wick before it rises.
• Reading dragonflies on thin markets, where a single order can draw a long wick.