UK Accounting Glossary
The Dragonfly Doji candlestick is a special Doji where the open and close price are at the high of the day. The price action suggests indecision among traders.
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.
The Dragonfly Doji suggests that sellers have driven the prices lower during the session, however by the end of the session the buyers have pushed the prices back to the opening level and the session high.
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This glossary post was last updated: 22nd March, 2020