Note that it is the exact opposite of the dragonfly doji.
There are two types of gravestone doji that I look for when I’m analyzing charts for trade setups:
- the gravestone doji that forms in an uptrend
- and the gravestone doji that forms in a downtrend.
Now for the gravestone doji the forms in an uptrend, I would take notice and consider it a bearish signal if it forms in some levels of resistance that price hits. When you think of it, this would look more like a bearish pin bar/shooting star kind of candlestick except that this one has little or no candle body at all.
For the gravestone doji that forms in a downtrend, I would consider it bullish signal if it forms in a level of support.
Now, for my case, if a gravestone doji forms anywhere on the chart, I don’t take notice…which means I don’t care.
But when a gravestone doji forms on these levels when price is in an uptrend:
- resistance level
- price hits falling trendline and gravestone doji forms
- or fib retracement levels or
- confluence of price action.
That’s when I take notice?
Because the price level where that gravestone doji forms has much more meaning than if it forms anywhere on the chart.
You got to pick your battle…and you want to fight where you know you have a greater chance of winning.
So how does the gravesone doji form?
Well, it is formed when the open price, low price and close price are the same or about the same price with one long upper shadow.
The long upper shadow is the most important feature of the gravestone doji.
Why do you think, that is the case?
Because that’s where price went up, hit resistance and came back down.
So imagine if a gravestone doji candlestick was seen on the daily chart in a major resistance level zone? If price breaks the low of the gravestone doji, how do you think traders will react to that?