What is the Dragonfly Doji? | Definition & example


The Dragonfly Doji candlestick pattern, characterized by identical high, open and close prices, indicates a potential price reversal, with the direction depending on past price performance.

A price close to the open suggests that purchasers successfully absorb selling and drive the price back up. The candle’s extended bottom shadow indicates significant selling during that time.

Dragonfly Doji in a nutshell

  • Candlestick with identical high, open, and close, signaling potential price reversal.
  • Extended bottom shadow suggests significant selling during the period, especially in a downward trend.
  • In binary options trading, Dragonfly Doji after downtrend suggests potential bullish reversal opportunity.

See the best candlestick patterns that are used for binary options trading here

What does a Dragonfly Doji candlestick indicate?

Following a downward trend, the dragonfly candlestick may indicate a price increase. It suggests that more sellers are entering the market after a surge, which a price crash may follow. The candle that comes after the dragonfly doji in both situations must confirm the direction.

Although it doesn’t happen often, the Dragonfly Doji pattern alerts traders to the possibility of a trend reversal. After a price surge, the dragonfly’s protracted lower shadow shows that sellers were in charge for at least some of the time. Even though the price didn’t change at the end of the term, the increased selling pressure is worrying.

A candle that validates the turnaround must come after a potential bearish dragonfly. The next candle must fall below the dragonfly candle’s close and close below it. The reversal signal is invalidated by a price increase on the confirmation candle because the price may continue to rise.

Illustration: How does the Dragonfly Doji appear?

The Dragonfly Doji appears as a T-shaped candlestick, where the open, high, and close are nearly identical. Since this is unusual, dragonfly dojis are extremely uncommon. The prices of these three products typically vary slightly. A dragonfly doji formed during a correction that drifted laterally within a longer-term upswing. A dip below the most recent lows is made by the dragonfly doji before buyers quickly drive it higher.

After the dragonfly, the price increases on the next candle, signaling a reversal in trend. During or immediately following the confirmation candle, investors would make a purchase. 

The illustration demonstrates the adaptability offered by candlesticks. The price didn’t drop significantly before the dragonfly, but it did drop before being forced back up, suggesting that it was likely to increase even more. The confirmation candle and the dragonfly pattern, when viewed in a larger context, showed that the short-term correction was over and the uptrend had resumed.

When the high, open, and closing prices are the same, it gets represented by the Dragonfly Doji. Since all three are identical, you will see a T shape in this candlestick pattern. It also indicates a trend reversal where a candlestick showing an increasing trend might reverse soon. 

How to trade the Dragonfly Doji with Binary Options?

To trade a Dragonfly Doji with binary options, traders should look for it to appear after a downtrend, as it often signals a potential bullish reversal. The long lower shadow indicates that sellers were initially in control, pushing prices down.

What trading strategies to use with Dragonfly Doji in Binary Options?

  • Call options: After identifying a Dragonfly Doji following a downtrend, traders can consider placing a Call Option. This reflects the anticipation of a bullish reversal.
  • Support Levels: Combine the Dragonfly Doji signal with support levels for a more robust strategy. If the Dragonfly Doji forms near a key support level, it adds weight to the potential reversal.
  • Moving averages: Incorporate moving averages to provide additional confirmation. When the Dragonfly Doji aligns with a bullish crossover of short-term and long-term moving averages, it strengthens the case for a bullish reversal.

What is the Dragonfly Doji enployed for?

A dragonfly Doji candlestick has a high open, a low close, and a middle point and is frequently employed to recognize and localize share price or asset price reversal patterns. Have you ever wondered how technical analysts analyze charts and make trading decisions? In this process, candlesticks are used. Candlesticks are a type of technical indicator that combine data from multiple timeframes into a single bar. The bars are quite uncomplicated and easy to read. One of the many types of candlesticks is the dragonfly Doji candlestick.

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About the author

Marc Van Sittert
Marc Van Sittert is an experienced Binary Options Trader and coach who is originally from South Africa. He started his career in 2014 by trading old-school Binary Options online. His main focus is on short-term contracts with 60-second trades.

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