Candlestick chart patterns help traders discover potential reversals or trend continuations. Dragonfly Doji is among the patterns that signal trend reversals. The pattern is strong and reliable, however, it appears less frequently on the charts. Let’s find out what Dragonfly Doji is and how to trade it in Forex.
Dragonfly Doji definition
Dragonfly candlestick pattern is a bullish trend reversal pattern that appears at the end of a downtrend. The pattern has a long lower shadow. Dragonfly Doji means that after the candlesticks opened, bears managed to take the price down significantly, which was followed by bull’s similar response and the candle closed at the same price as it’s open.
Why is Dragonfly Doji important for traders?
- Understanding Dragonfly Doji can help traders predict trend reversals.
- This is an easy-to-spot pattern, therefore traders don’t need to have big expertise in order to use it.
- Dragonfly Doji can be highly useful for scalpers and intraday traders.
Thorough Dragonfly explanation
Dragonfly, also referred to as Dragonfly Doji, is a bullish Forex candlestick chart pattern that can predict price reversal. Dragonfly has large lower shadow, small or non-existent upper shadow and the same open and close price.
When the pattern appears in a downtrend, it indicates that the price openned, bears moved the price down and were responded by bulls with the same force. As a result, the candle closed at the same price as it opened but left a long lower shadow. The battle might be an indication of the change in initiative. Which is why it is considered to be a bullish reversal pattern.
Understanding Dragonfly in trading is important, as it offers great risk to reward ratios and helps traders better manage already established positions or prepare for trend reversals.
Example of Dragonfly in Forex
In order to better understand how to trade the pattern, let’s take a look at the Dragonfly example. As we have already mentioned, Dragonfly Doji rarely appears on the markets. In order for the pattern to indicate price reversal, it needs to be at the bottom of a downtrend. In this British Pound vs US Dollar example, Dragonfly Doji displays a battle between bulls and bears at the end of a downtrend. In order to trade the pattern, you can open a long position after the pattern is fully formed or wait for the confirmation candle, which should be bullish to make sure the reversal is underway. In both cases, Stop Loss can be placed below the Dragonfly Doji’s shadow.
FAQs on Dragonfly in trading
Is Dragonfly bullish?
Dragonfly Doji is a bullish trend reversal candlestick pattern. Dragonfly Doji appears rarely on the markets. When it appears at the bottom of a trend, it predicts an upcoming price reversal. Traders can open long positions after the pattern is fully formed or wait for a confirmation candle to make sure that reversal is coming.
What happens after Dragonfly?
Dragonfly Doji forms at the bottom of a downtrend. The pattern predicts the price to start trending upwards after it is fully formed.