UK Accounting Glossary
A dragonfly doji is a variation on the doji candlestick with a long lower shadow and no upper shadow, such that it resembles a capital “T.”
The trading pattern that creates a dragonfly doji proceeds with the price of a security opening at the high of the day, selling off to a low, and then recovering back to the high. Depending on the trend that precedes it, a dragonfly doji can either send a bullish signal or a bearish signal. For example, a bullish reversal is possible if a dragonfly doji manifests during a downtrend; the sell-off and recovery pattern of a dragonfly doji suggests a recognition by traders that the security was oversold and has begun to attract buyers. Similarly, a bearish reversal is possible if a dragonfly doji occurs during an uptrend; the sell-off and recovery pattern of the dragonfly doji suggests sellers have begun to show interest, and buyers are no longer strong enough to push a security to new highs. Although a dragonfly doji is considered a moderately reliable signal, traders need to observe the direction of trading action the next day for confirmation.
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This glossary post was last updated: 9th February 2020.