Gravestone Doji

What it is

A gravestone doji is a candlestick pattern that can signal a bearish reversal. Visually it resembles an inverted “T”: the open, low, and close are at or very near the same level, and there is a long upper shadow (wick). The long upper shadow shows that buyers pushed prices up during the session but sellers drove the price back to the opening level by the close.

How to interpret it

Market narrative: bulls attempt to extend an uptrend but lose momentum, allowing bears to push price back down by the close.
Typical location: most effective when it appears after an uptrend; less commonly it appears at the end of a downtrend.
Meaning: suggests growing selling pressure and the possibility of a downside reversal, but not a guarantee.

Confirmation and reliability

Wait for confirmation: traders usually wait for the next candle to close bearish (below the doji’s close) before acting.
Volume: higher volume on the doji or the confirming candle increases reliability.
Use other indicators: combine with RSI, MACD, moving averages, or support/resistance to reduce false signals.
Limitations: like most single-candle patterns, the gravestone doji can produce false positives; it’s best treated as a warning sign rather than a standalone trade signal.

How traders use it

Typical actions:
Exit long positions at or after confirmation.
Initiate short positions after a confirming bearish close.
Entry rules (common approach):
Enter short when the candle after the doji closes below the doji’s close.
Alternatively, some traders enter on a break below nearby support or a moving average.
Stop-loss placement:
Common stop: just above the top of the gravestone doji’s upper shadow.
Shorter-term traders may use tighter stops; longer-term traders may allow more room to avoid being stopped out by volatility.
Targets and risk management:
Set profit targets at nearby support levels, gap fills, or key moving averages (e.g., 50- or 200-day).
Adjust position size and use stop-losses to control risk.

Gravestone doji vs. dragonfly doji

Gravestone doji: long upper shadow, open/low/close near the same low — typically interpreted as bearish.
Dragonfly doji: long lower shadow, open/high/close near the same high — typically interpreted as bullish.
Both reflect intraperiod uncertainty; either can fail, so confirmation and context matter.

Quick checklist before trading a gravestone doji

Appears after an uptrend or rally
Long upper shadow, open/low/close approximately equal
Confirming bearish candle closes below the doji’s close
Volume supports the signal (higher volume preferred)
Other indicators (RSI, MACD, moving averages) align with a bearish view
Clearly defined stop-loss and profit target

Bottom line

A gravestone doji is a visual warning that bullish momentum may be fading and a reversal could follow. It gains practical value only when confirmed by subsequent price action, volume, and supporting technical indicators. Use it as one element of a disciplined trading plan rather than as a standalone trigger.