Gravestone Doji – interpreting the market spirit

A Gravestone Doji is a look-alike of Dragonfly Doji. However, instead of a long downward shadow, gravestone pattern sports a long upper wick, which distinguishes it from other Doji formations. It is considered bearish and appears during an uptrend.

Gravestone Doji forms when open, low, and close are same. Often, the candlestick has no real body and a long upward shadow, which makes it look like an inverted ‘T’. Like dragonfly candlestick pattern, gravestone candlestick signifies probable trend reversal, but traders need to be careful about planning trading strategy around it. How they can do that is what we will discuss in this article.

Understanding Gravestone Doji

Gravestone Doji is one of the many formations from Doji category. But unlike Doji star, which signifies market indecisions, gravestone candlestick indicates price reversal. But traders need to confirm the change with the formation of the next candle. It appears in a market uptrend indicating a bearish reversal might initiate.

How do you identify a gravestone pattern? Since it is not a common occurrence, you need to be careful to identify a gravestone candlestick when you see one. It looks like an upside-down ‘T’ or inverse dragonfly pattern. It occurs when open, low, and close prices are the same; but also buyers were present early in the market trying to push the price up. The long upward shadow indicates that the market was trying to find the upper resistance level and found it. The bulls were trying to push the price upward, but at the end of the day, strong selling spree prevailed; thus, totally rejecting the upward trend.

Interpreting Gravestone Doji

For technical traders, the formation of Gravestone Doji gives crucial indications of a trend change. It allows traders to visually check where market resistance is and probably an end of a long position. But Gravestone Doji alone doesn’t confirm anything. It needs assertion from the candlesticks forming next to the gravestone to confirm the end of an uptrend. It could easily be a break from the continuing uptrend, and there is no real trend reversal. Traders preparing to exit the market usually take their position during the formation of the next candle.

Here are the key takeaways,

  • Gravestone Doji candlestick is a bearish pattern that indicates a downward trend reversal
  • It might signify a possible end to long position to exit the market with a bullish profit or engage in a bearish trade
  • It is the opposite of Dragonfly Doji

What Does The Gravestone Candlestick Tell You?

A gravestone pattern can also form at the end of a downtrend, but most commonly you’ll locate it in an uptrend, signifying the onset of a bearish trend. It is the long shadow that differentiates a gravestone pattern from other similar formations such as, hammer, shooting start, or a spinning top. It suggests that bullish trends tried to find the upper limit of price, but the presence of strong bearish trends pulled down the closing price to the level of the opening price.

Traders ideally should exit their long position and entre short position when gravestone occurs. But, it suffers from the same reliability issues of other Doji patterns. To avoid mistakes, traders, therefore, consider the volume of the session and previous trends before confirming their position.

They usually consult other technical indicators such as moving average convergence divergence (MACD), relative strength index (RSI) to identify a possible exit point. Positioning a stop-loss above the upper shadow is also a well-practised trading strategy around a gravestone candlestick pattern.

Gravestone vs Dragonfly Doji

Both gravestone candlestick and dragonfly candlestick, in reality, are similar formations, when confirmed, one indicates a bullish trend and the other, bearish. Both forms need confirmation from the next candle. Both patterns offer traders a visual representation of uncertainties and help them test respective support and resistance levels in the market.

Limitations Of Gravestone

The appearance of a gravestone candlestick in uptrend possibly indicate the end of a bullish phase and onset of bearish forces. Using it, traders can plan their exit with profit. But gravestone pattern alone isn’t a confirmation of a trend change. Traders need to wait for the next candle to form to plan their position. It could easily depict market indecision, and the market can continue to rise afterwards. Gravestone Doji is best when accompanied by other technical trading tools.