Dragonfly Doji Candlestick

Key takeaways

• A Dragonfly Doji forms when the open, high, and close are (nearly) the same and the low is significantly lower, producing a “T” shape.
• After a downtrend it can signal a bullish reversal; after an uptrend it can warn of a bearish reversal.
• Traders typically wait for a confirming candle (a follow-through close above or below the Doji) before acting.
• The pattern is rare and should be used with other indicators, volume, and chart context.

What it is

A Dragonfly Doji is a single-candle pattern in which price falls during the period (creating a long lower shadow) but then returns to close at or very near the open and high. The resulting candle looks like a “T”: little or no real body at the top with a long lower wick. The long lower shadow shows that sellers pushed price down, but buyers later absorbed the selling and drove price back to the open.

How to interpret

• After a downtrend: the Dragonfly Doji indicates buyers stepped in during the period. If the next candle closes higher (above the Doji’s close), it can confirm a bullish reversal.
• After an uptrend: the long lower shadow reveals selling pressure. If the next candle closes lower (below the Doji’s close), it can confirm a bearish reversal.
• Without confirmation, the Doji may simply reflect indecision and not a true reversal.

Confirmation and trade rules

• Wait for the candle following the Dragonfly Doji:
• Bullish confirmation — next candle closes above the Doji’s close.
• Bearish confirmation — next candle closes below the Doji’s close.
• Entries: enter during or shortly after the confirmation candle.
• Stops:
• For long trades: place stop loss below the Doji’s low.
• For short trades: place stop loss above the Doji’s high.
• Use volume and the strength of the confirmation candle to assess reliability: higher volume and a strong price move improve the signal.

Example scenario

Within a longer uptrend, a brief sideways pullback produces a Dragonfly Doji that dips below recent lows but is rapidly pushed back to the open. A following bullish candle that closes above the Doji confirms the resumption of the uptrend; traders may buy on confirmation and set a stop below the Doji’s low.

Comparison with similar patterns

• Gravestone Doji — the inverse of the Dragonfly: open, low, and close are at the same level with a long upper shadow (an upside-down “T”). It implies the opposite pressure and also requires confirmation.
• Hammer — appears at the bottom of a downtrend and has a small real body near the top of the range; unlike the Dragonfly Doji, the hammer’s open and close differ (the body is not a true Doji).
• Spinning top — has a small body but larger than a true Doji; indicates indecision but not as precise a Doji signal.

Limitations

• Rarity: exact open = high = close is uncommon; near-Doji forms are more typical but less precise.
• Reliability: even with confirmation, reversals are not guaranteed. False signals occur.
• Risk/reward: the distance between entry and stop loss can be large relative to expected reward; this can make some setups unattractive.
• No price target: candlestick patterns do not provide exit levels, so combine with other tools (support/resistance, indicators, chart patterns) to plan exits.

Other reversal patterns to consider

Engulfing patterns, morning star / evening star, harami, shooting star, and inverted hammer are commonly used alongside Doji patterns to identify potential reversals.

Bottom line

A Dragonfly Doji highlights intraperiod rejection of lower prices and can mark a turning point when it appears in the proper trend context and is confirmed by the subsequent candle. Because it is rare and can reflect mere indecision, treat it as one piece of evidence—use confirmation, volume, and broader technical context before trading.