The dragonfly doji is a widely recognized, single-bar Japanese candlestick pattern that signals market indecision. Historical backtests reveal it performs best as a bearish continuation strategy across multiple markets.
For traders leveraging candlestick patterns, the dragonfly doji offers surprising profitability despite its indecisive appearance. Data confirms it can predict downward price movements—making it a valuable tool in technical analysis.
What Is a Dragonfly Doji Candlestick Pattern?
The dragonfly doji is a subtype of the doji, characterized by:
- Nearly identical open and close prices near the high.
- Minimal or no upper wick.
- A long lower shadow resembling a dragonfly’s wings.
Contrary to its name, this pattern often precedes bearish trends.
How to Identify the Dragonfly Doji
Key criteria for validation:
- Equal or near-equal open/close prices.
- Absence of a significant upper wick.
- Long lower shadow (at least 2–3x the candle’s body).
👉 Example: Dragonfly Doji on Amazon (AMZN) Daily Chart
Trading the Dragonfly Doji
Optimal Strategy: Bearish Continuation
- Entry: Short position if price drops below the doji’s close.
- Stop Loss: Place above the doji’s high.
- Target: Aim for a 1:2 or higher risk-reward ratio.
Case Study: Bitcoin (BTCUSD) – November 3, 2021
- A dragonfly doji signaled a downtrend.
- Entry triggered below the close yielded a 5% drop within days.
Backtest Results
Rules tested:
- Uptrend confirmed by 50-day SMA.
- Risk-reward ratios (1:1 to 1:5).
- Entry/exit within 3 days of pattern formation.
Findings:
- Most profitable in forex and crypto markets.
- Average win rate: 58% with 1:2 risk-reward.
Dragonfly Doji vs. Other Doji Patterns
| Pattern | Description | Reversal Signal |
|------------------|--------------------------------------|-----------------|
| Dragonfly Doji | Closes near high, long lower shadow | Bearish |
| Gravestone Doji | Closes near low, long upper shadow | Bearish |
| Long-Legged Doji | Extended upper/lower shadows | Indecision |
Takuri Line vs. Dragonfly Doji
- Takuri Line: Bullish reversal in downtrends.
- Dragonfly Doji: Neutral/bearish in any trend.
FAQs
Q: Can the dragonfly doji predict bullish reversals?
A: Rarely. Backtests favor bearish strategies.
Q: Which markets suit this pattern best?
A: Crypto and forex, due to higher volatility.
Q: How reliable is it for day trading?
A: Works best with trend confirmation (e.g., SMA filters).
👉 Explore advanced candlestick strategies
Key Takeaways
- Trade dragonfly dojis as bearish continuations.
- Use SMA filters to improve accuracy.
- Combine with volume analysis for higher confidence.
Data disproves traditional myths—proving even indecision candles can be profitable with the right strategy.
Backtest sources: Analyzing Alpha GitHub repository.