The bearish ‘Dragonfly Doji’ is a single candlestick reversal pattern that is found at the top of a bullish market. As a ‘doji’ its opening and closing levels are the same or should have very little variance. A small wick may be visible but not necessary, a long tail however is required creating a picture of a dragonfly, hence the name. This pattern may be viewed as moderately credible; it is sometimes mistaken for the less reliable ‘Hanging Man’.
Technical Description
1) The preceding trend must be bullish.
2) The latest candlestick opening with a gap up developing a small wick, possibly with none evident.
3) Dragonfly Doji’s typically have the same open and closing levels or marginal difference between them.
4) Price action for the period should see a long tail develop ideally more than half the usual range for the period.
Mark’s Perspective
Classical candlestick rules view ‘Dragonfly Doji’s’ as moderate reversal pattern. We make a distinction however between bullish and bearish, the latter more a signal that definitely requires confirmation. Generally speaking the longer the tail the more significant the pattern will be regardless whether its bullish or bearish. Shorts should only be taken when the latest candlestick gapped down at the open or with a black candlestick and a close near its lows. Stop losses must be placed above the high of the doji.