The dragonfly doji is a very rare type of candlestick pattern. When you find this type of candle pattern in your stock, it points us to a reversal. The dragonfly doji is very similar to a bottoming tail. The difference is that the dragonfly doji has no body.
The picture above shows how the dragonfly doji looks like. The open and the close is the same. But there is a very long tail in the doji. If you look at a dragonfly from above and see how it flies, this is what the dragonfly looks like. A dragonfly can fly and so when you see a stock that is in a downtrend make a dragonfly doji, then it tells us that the stock may reverse and fly higher!
In order to understand the powerful reversal signal that this candlestick pattern give us, we need to know what has happened to the stock during the day. The stock opened and then as the day went on the stock dropped very low. However, the stock moved up again and close at the same price as the open. The psychological impact is very strong and this tells us that the bears were not able to push the price lower. The bulls came in and help pushed the stock higher by the end of the day.
In the chart above, ADI was having a correction for a few days. Then a dragonfly doji appeared. The doji appeared near the previous low which acted as a support. When the stock made the doji pattern, this told us the bears were not able to make this stock go lower. The previous support was holding and was successful in keeping the stock from going lower. The bulls did not win the victory that day but they certainly did not allow the bears from gaining any further. Eventually the stock moved higher from there.
The chart above shows AYI which had a big gap down in January. The stock drifted sideways and looked like it was going to move lower. Then the stock formed a dragonfly doji. It is a very small one but it was no less powerful in telling us that a short term reversal is at hand. Sure enough, the doji marked the short term bottom. The stock was unable to move lower from there and it drifted sideways for a while. Then it chugged higher till it met the 50 MA resistance.
The dragonfly doji is a very rare candle pattern. It will take a long time before you can see one in the daily charts. But when you see it, take note and be ready for a reversal.
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