There are many different types of dojis that traders can use for analysis. A dragonfly is an increasingly popular variation on the standard Doji. The dragonfly consists of a long lower shadow, with very little or no upper shadow, and a short body that can be either black or white. It has the same shape as a standard Doji, but it has more weight to it when compared to other variations on this pattern.
The Dragonfly Doji could be the strongest reversal signal in candlestick trading. This simple candle tells traders that there are two polar sentiments, and they are pulling together without any momentum. This reversal signal has already been tested and used by thousands of professional traders worldwide and is one of the world’s most reliable reversal candlestick patterns.
The dragonfly has a very similar appearance to other Doji candles, except it is more pronounced. Unlike a standard Doji, which has an upper shadow, this is a Doji with no upper shadow but rather a broadening lower shadow. This candle is formed when the volume at least doubles compared to its open level.
Dragonfly Variations
Wolf Dragonfly
The Wolf Dragonfly looks very much like the standard dragonfly, except its body is more exhaustive. It can be compared to a spinning top pattern in a bar chart. The body of the Doji is broadened as it rises. However, it never forms a wick, otherwise ordinary for spinning tops in bar charts. The volume of the candle should at least double from its open level and close near its high level.
Gravestone Dragonfly
-The Gravestone Dragonfly is entirely different from the standard dragonfly. It has nobody, and its shadow is either very thin or nonexistent. There will be a thin line or bar chart shadow resembling a gravestone, except that it is slightly pronounced with a small top area. The gravestone is formed when the candle appears to be dormant, and then suddenly, there is an aggressive bullish movement during the last few minutes of trading.
Dragonfly Pattern Confirmation
The Dragonfly Doji pattern confirms when the price is below the upper shadow of the Doji. Confirmation occurs when the price continues its trend and penetrates below the lower shadow of the Doji. A dragonfly formed at a higher level of resistance will be a more reliable signal than one formed lower. The confirmation candle must also have a substantial volume to qualify as valid.
Dragonfly Trading Strategy
The key to using this pattern is in the time and price location of the formation. This is not simply a reversal signal; it is also a pivotal point where testing support and resistance. The Doji body can be used as a measuring tool to discover entry and exit points that will be best suited for your trading strategy.
The most important thing to remember is that a dragonfly candle can be a combination of many different candlestick patterns. It could either be a spike, a Doji, or even a spinning top. When in doubt, always confirm the pattern and look at other trends that are currently occurring on the charts.
The dragonfly is an essential variation of the Doji candle with enough weight to form reliable signals, but it is not overly complex.
Dragonfly Squeeze
The dragonfly squeeze occurs after the price has been squeezed for several days when it finally breaks through any resistance level. After this breakout, the price is likely to be overbought to avoid potential mass sales. The dragonfly should be formed at a lower point of the trading range instead of its upper area. The dragonfly sign has excellent reliability as a reversal signal.
Dragonfly Reversal
When a dragonfly candle appears, it could be a reversal signal. In this case, the dragonfly is following an uptrend. Advance traders should look for other confirmation indicators to confirm that this is not just another Doji candle. The dragonfly sign will form when the price has been trading sideways for at least several days, and there is a clear break above previous support levels.
The price is likely to trade horizontally in the range but eventually breaks through the upper and lower resistance levels. The dragonfly candle should be formed when this price action occurs, and traders can expect the price to reverse.
Dragonfly with Deliberation
Traders should notice that gradually when the dragonfly reverses, it will do so. Sometimes, it can take several more days before the dragonfly candle is formed. If several dragonflies follow the trend, it is difficult to say when exactly the reversal will occur. The final confirmation will come when the Doji collapses at a lower price level. The dragonfly candle can be a massive volume decline, along with a sudden shift.
Dragonfly Pattern Charting Tips
When reviewing any chart pattern, it is crucial to look at the volume that the pattern forms. The larger the volume of the formation, then the more reliable it is as an indicator. Ensure that you review candlestick patterns in general, so you become familiar with how to read and interpret each particular type.
Investors who wish to trade the dragonfly Doji pattern should always confirm the formation with other elements on the chart. This is where an advanced trader can shine. The dragonfly can be a combination of many different types of candles, so it is vital to be aware of any other trends that are taking place on the chart at the current time.
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