The reason it is named a “gravestone” is that the candlestick’s general shape, which has a long upper shadow but no lower shadow, is similar to a gravestone. This can simply be observed at the top of the charts in the form of an inverted ‘T’. The gravestone doji is a bearish reversal candlestick found on a Japanese candlestick chart, typically at the highs or at resistance.
- The Gravestone Doji has developed into one of many candlestick formations that traders employ when examining the markets.
- Traders should always analyze the volume when using the gravestone candlestick, as it adds another layer of reliability to the trading signal.
- The top candlestick looked the same as the bottom, but was a shooting star.
- The name “Gravestone Doji” is derived from its resemblance to an upright gravestone.
But the most critical indicator, in this case, is the next candle that is strongly bearish and offers a powerful signal for a trend reversal. The example below shows how the bearish gravestone Doji forms at the top of a trend and signals a selling opportunity on a GBP/USD 1-hour chart. To confirm the pattern’s bearish reversal signal, we used RSI and MACD – two of the most popular and effective momentum indicators. Then, as soon as the next candle closes below the closing price of the gravestone candle, a trend reversal is likely to occur, and a new bearish trend begins.
In this strategy, we’re looking for a regular bearish divergence, which is observed when the price is forming higher highs, and the RSI is forming lower highs. This signals weakening buying momentum and sets the stage for a potential bearish reversal. A gravestone doji candle typically appears after an uptrend, often at a resistance level/zone. These are critical areas above the current price that have previously triggered price reactions, causing the price to pivot direction after reaching them. Hence, in the event that the gravestone doji does lead to a downward trajectory, we can expect the 50 SMA to act as a major barrier that will likely prevent the price from declining much further.
Is a Doji bullish or bearish?
The percentage of Gravestone Doji winning trades was 57% versus 43% losing trades, higher than the 55.8% average performance across all candlestick types; in fact, the third best of all. The Max Drawdown was -28.6%, versus the stock drawdown’s drawdown of -59.3%, which shows less volatility than a buy-and-hold strategy. These include the Standard, Long-legged, Dragonfly, and Gravestone.
Dragonfly Doji
Where the gravestone doji is an inverted T with a long upper shadow, the dragonfly doji is a T with a longer lower shadow. In an uptrend, it means that the bearish pattern may be getting stronger while a dragonfly doji that appears in a downtrend indicates the opposite trend. Keep in mind that this pattern isn’t one that occurs very frequently. A doji is a trading session where the security’s opening and closing levels (or prices) are either equal or virtually equal. Traders would also take a look at other technical indicators to confirm a gravestone doji candlestick pattern potential breakdown, such as the relative strength index (RSI) or the moving average convergence divergence (MACD).
As to its appearance, it has a long upper wick, no lower wick, and opens and closes around or at the same price. In conclusion, the Gravestone Doji is one of the most profitable candlestick patterns; its bullish win rate of 57% results in an average profit per trade of 0.65%. It does not conclusively indicate market reversals; in fact, it is slightly bullish. The occurrence of a Gravestone Doji is considered a bearish signal, indicating that a stock price may soon undergo a bearish reversal.
Other Types of Candlesticks
Once you spot the pattern, confirm the signal using other indicators like volume or RSI. The higher volume during the formation of the gravestone doji adds to its significance. Low volume, on the other hand, might suggest that the signal is weaker, and the pattern could fail to lead to a reversal. The Gravestone Doji candlestick usually shows up at the end of an uptrend.
Crypto Signals Feed
However, a «Long-legged doji» has long upper and lower shadows on both sides, indicating high volatility for a certain period and indecision in the market. Therefore, market participants exercise caution when this pattern appears as it signals a possible reversal or a strengthening of the current trend. A «Gravestone doji» is the opposite of a «Dragonfly doji» pattern, which is more often observed at the bottom, warning market participants of an upward reversal. Moreover, a «Dragonfly doji» pattern lacks a candlestick body and has a long lower shadow, with the opening and closing prices at the level of the candlestick’s high.
It looks like an upside-down “T” pattern with little to no real body. The gravestone could be either a bullish candlestick or a bearish candlestick. What matters is where these patterns occur, near resistance levels or the top of trends. When you see this pattern, be aware of a change in trend to the bearish side. The Gravestone Doji is a bearish candlestick pattern that occurs when the opening and closing prices are near the low of the candlestick and there is a long upper shadow. This pattern suggests indecision in the market and can be a sign of a potential trend reversal.
Crypto Chart Patterns
I found using TrendSpider to identify and execute trades to be fast and accurate. If you want to independently test candlestick patterns and strategies, please follow the instructions below and refer to the screenshot for guidance. After confirmation of the current trend, enter the trade and consider a stop loss to limit risk. When trading a Gravestone Doji, it’s important to use confirmations in the form of reliable candle patterns, such as an Inverted Hammer or a Bearish Marubozu.
What are the most reliable candlestick patterns for day trading?
- When a strong attempt is made at pushing price higher through these resistance levels, but then prices are quickly rejected, a gravestone doji candlestick pattern may form.
- A Gravestone Doji’s appearance suggests buyers are losing control and sellers are starting to dominate, potentially signaling a future downward trend.
- Unfortunately, this makes it less suited for total beginners, as proper interpretation requires a more advanced understanding of price action and trading psychology.
- Evaluating historical occurrences of the pattern can offer valuable insights into potential outcomes and enhance decision-making.
- This approach will enhance the effectiveness of the pattern within a trading strategy and bolster potential profitability.
- This form of technical analysis, developed in Japan in the 18th century, helps traders and investors assess price movements and market sentiments before making a trade decision.
Furthermore, reliable indicators such as the Relative Strength Index (RSI), Rate of Change (ROC), or Volume can be used to determine if the trend will likely reverse or continue. When trading a gravestone doji, one needs to be aware that this pattern moves in a bullish direction 57% of the time, regardless of whether it occurs in an up or downtrend. Also important is that this pattern does not indicate a particular reversal over a 10-day period; the data suggests one should go long. As you can see in the chart above, there are two Gravestone Dojis; the first occurs at the end of an uptrend and does signal a price reversal.
Signals Summary
The results of our testing confirm it is the 3rd most important pattern in terms of profitability and predictive integrity. My groundbreaking research into the profitability and success rates of chart patterns and technical indicators is built on the most powerful backtesting platforms available. Trading Gravestone Dojis can be very tricky since they provide reliable predictive signals only 57% of the time. When trading a Gravestone Doji, the first step is to observe the overall market trend. Once you’ve identified the trend, you should confirm it by looking at other indicators like moving averages or support and resistance levels. No, according to our testing, the Gravestone Doji is not a bearish reversal pattern.
The gravestone doji is a frequently occurring candlestick pattern that opens and closes near the low, traditionally thought to represent indecision. Intelligent traders can profitably trade these patterns by listening to the data and learning other bullish candlestick patterns. A green «Doji» candlestick can emerge when the closing price settles slightly above the opening price. However, the long upper shadow still indicates that the price is trading at the resistance level. A «Long-legged doji» pattern, like a «Gravestone doji,» lacks a candlestick body.
This is why waiting for a confirmation candle is essential, as it helps solidify the shift in market sentiment to bearish. Overall, this results in its appearance resembling an inverted letter “T” or a gravestone. Otherwise, if it appears during a downtrend, then it simply validates the existing bearish directional bias.