The Shooting Star has a small body near the low of the candle, with a long upper shadow, but the closing price is slightly above or below the opening price. The Gravestone Doji has almost no body, with the open, close, and low prices nearly the same, creating a long upper shadow. This shows that bulls pushed the price up, but bears took over and brought it back down. It is characterized by a long upper shadow and little to no lower shadow, with the open, closed, and low prices all being nearly the same.
Gravestone Doji Candlestick Pattern Overview
Remember, the gravestone doji is a doji variant, and as such, it is inherently indecisive by nature, making it unactionable (despite its bearish directional bias) when viewed on its own. 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. And if it shows up during a non-trending (sideways) period, it is also insignificant, since there is no clear market sentiment to begin with.
Step 5: Open the Trade
A “Shooting star” pattern, similar to a “Gravestone doji” pattern, emerges at the peak following an uptrend. Unlike a “Gravestone doji,” a “Shooting star” pattern has a short body and a long upper shadow. A “Gravestone doji” pattern’s signal is much stronger at the top of a price trend, unlike the “Shooting star.” No, sometimes a “Gravestone doji” pattern occurs at the bottom of a downtrend when an asset is in an accumulation phase. Once a “Gravestone doji” candlestick appears at the bottom, bearish momentum may persist for a short while, but later the downtrend may reverse.
Importance of Gravestone Doji Pattern
The overview explains how effective a “Gravestone doji” pattern is in trading and provides guidance on how to properly integrate the pattern into your trading strategy. The gravestone doji is a bearish reversal candlestick found on a Japanese candlestick chart, typically at the highs or at resistance. It signals indecision, and a slight possibility for a bearish downturn. According to legendary technical analyst Thomas Bulkowski, the gravestone doji pattern is not very reliable as it only has a 51% chance to properly signal a reversal. It requires additional confluences from other technical indicators to be traded with consistency.
Further, to confirm the trend reversal, you should use other momentum indicators such as the RSI, MACD, and Fibonacci support and resistance levels. If the gravestone Doji candle pattern appears at the end of a downtrend, then it indicates that sellers cannot push prices lower, and a bullish trend reversal is likely to happen. The gravestone doji is a bearish reversal pattern that often appears at the top of an uptrend. It’s characterized by a long upper shadow, a very small body (where the open and close are nearly the same), and little to no lower shadow. The standard version of the gravestone Doji candle pattern is bearish. Typically, traders use this pattern to enter a short-selling position or exit an existing long position.
The Gravestone Doji candlestick pattern is a bearish reversal pattern, which means it can be a signal for traders to consider selling or shorting an asset. It is best used in combination with other tools and should not be relied on as the sole indicator for trading decisions The reason why Gravestone Doji is considered as one of the most significant Doji is because it represents the balance between Bears and Bulls during a trading session. The history of gravestone doji dates back to the early 1700s, it was developed by the Japanese for analysing rice trading.
What are the Advantages of the Gravestone Doji Pattern?
For instance, when the price encounters a resistance level, stalls momentarily, and then forms a Gravestone Doji before declining, this setup is more likely to yield profitable results. In such cases, waiting for the next candle provides additional confirmation of the bearish momentum! As shown in the chart above, the price has returned to a significant area of resistance.
How to Identify the Gravestone Doji Pattern?
Conversely, when we observe an overall downtrending asset, the weekly gravestone doji played out perfectly. On this 1W chart on S&P 500, the gravestone doji candle perfectly signalled the short term reversal on the pullback. Consider this example below – as significant as the weekly gravestone doji candle was, it provided a false signal for reversal on EURUSD because the asset was in an overall uptrend. Regardless of timeframe, it’s simply more effective to trade the gravestone doji when there are other bearish confluences lined up – the most important being the overall market trend. Functionally, both these bearish patterns signal a trend reversal, with the red shooting star providing a stronger bearish signal. Visually, the gravestone doji pattern features a long upper shadow, whereas the dragonfly doji pattern has a long lower shadow.
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.
Again, the gravestone doji is not a decisive bearish reversal pattern on its own. I have been seeing the gravestone doji in up trends too when the bulls go parabolic. The Gravestone Doji may sound intimidating, but it’s a valuable candlestick pattern that can be a staunch ally in the world of trading. If all these events occur within one candlestick, the resulting pattern resembles the classic Gravestone Doji, and it indicates a potential reversal in the uptrend. The opening and closing prices of the candle are nearly identical, signifying the bearish pressure that countered the initial bullish momentum. This reversal erases the gains made by the bullish candle and retraces the price back to the opening level.
- This example shows how a longer wick shows that the bears are more determined to fight off the bullish advance and keep prices stable!
- Our test results show that a Gravestone Doji is 57% bullish and 43% bearish.
- A “Gravestone doji” pattern usually signals a fading bullish momentum and appears before a price reversal at the peak of an uptrend.
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To use this tool for finding bearish trades, draw the Fibonacci retracement from the recent lower high, to the recent lower low. It’s important to look for a move that has a lower high and lower low, as it implies that a broader downtrend is in play. The Fibonacci is an amazing tool that plots out hidden resistance levels to look for a long or short position, especially when in a trending market structure. 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.
Please be sure to use proper risk management techniques when trading a gravestone doji candlestick. It’s important to remember that some gravestone doji candle candlestick patterns look like other ones. That’s why it’s important to see where these patterns form and what the bigger overall pattern tells you. However, it’s typically found in a bullish trend that’s about to reverse.
- A gravestone doji candle typically appears after an uptrend, often at a resistance level/zone.
- Candlestick charting may have started more than 300 years ago in Japan, but it is still a vital tool for traders of all types today.
- Nevertheless, it still needs a confirmation candle or another confirmation tool to be a decisive bearish reversal signal.
- My groundbreaking research into the profitability and success rates of chart patterns and technical indicators is built on the most powerful backtesting platforms available.
The pattern formation led to the downward trend reversal, and the subsequent appearance of a “Hanging man” reversal pattern finally confirmed the loss of the bullish momentum. Various stochastic and trend indicators, as well as volume and cash flow indicators, can be used to confirm a “Gravestone doji” candlestick. Moreover, additional candlestick and chart patterns, along with breakouts of support levels and trend lines, can be utilized to validate the pattern. A “Gravestone doji” candlestick not only signals trend reversals but also suggests downward corrections following a prolonged bullish trend. A “Gravestone doji” is a chart pattern that usually forms at the peak of an uptrend and consists of a single candlestick with a missing body and a long upper shadow.