The Gravestone Doji Candlestick Pattern is a bearish pattern that indicates a potential reversal may be incoming. There are many candlestick patterns out there to take notice of. Candlestick patterns provide insight into price movement and where price action may be bound in the near future. Many traders use them as a form of technical analysis to confirm trade entries and exits when combined with a trading strategy.
“Doji” in Japanese means mistake or error. In the trading world, it translates into indecision. When you see one of the top four Doji candlestick patterns, you can identify that the stock market has encountered indecisiveness and that a possible reversal is to follow. It’s as if the bulls and bears are at a standstill and the market is about to make a correction.
One of the four Doji candlestick patterns is the Gravestone Doji. Sounds lively, doesn’t it? Its name represents exactly what happens most of the time when you see it on a bullish trending price chart, the death of an uptrend.
What Does the Gravestone Doji Candle Look Like?
The Gravestone Doji pattern is a form of technical analysis. It is also referred to as the inverted “T” due to its appearance or shape.
The Gravestone Doji Candlestick Pattern will have a long upper shadow or wick. It will have a very small or completely absent lower shadow or wick. The opening price and closing price of the candle are the same prices, or super close.
These candlestick attributes are important and identify the bearish Gravestone Doji. If these attributes are not met, the candlestick pattern can be invalid and also confused with other candlestick patterns such as the inverted hammer, shooting star, or spinning top.
What Does the Gravestone Doji Candlestick Pattern Mean?
The Gravestone Doji candlestick pattern is a price reversal signal when the pattern occurs. It is more commonly seen as a bearish reversal pattern that presents after a strong uptrend or bullish rally. Very seldom, it can be found at the end of a downtrend, but it appears more often after an uptrend.
After an uptrend in price movement, the Gravestone Doji’s long upper shadow suggests that the bulls have lost momentum and the price may be on its way downward. Because the candle’s closing price closes near the opening price, we can detect that the upward bullish attempt to push the price higher was rejected by the bearish participation.
The new downtrend is considered more significant and confirmed by the higher volume contained in the Gravestone Doji candlestick pattern and the next candle that appears. Many traders use other technical indicators, such as RSI or the MACD, to also confirm the stock price shift.
Is the Gravestone Doji Candlestick Pattern Reliable?
While it is easy to spot a Gravestone Doji, it should not be used on its own accord to open trade positions. Like all candlestick patterns, they should be confirmed by other methods.
Volume needs to exist in the Gravestone Doji. Higher volume tells traders that market participation is present and that the information contained in the candlestick is more valid.
The second indicator that traders may look for is the appearance of the next candle. Does it confirm the new price movement? If the Gravestone Doji candlestick pattern appears after an uptrend, and then you see a nice bearish candlestick manifest after the Doji candle, it can confirm the bearish pattern to follow.
Traders also use other indicators that track overbought or oversold conditions, such as RSI, or the relative strength index. Another technical indicator that is used to look at trend momentum and possible trend reversals is the MACD or the moving average convergence divergence.
Combining the Gravestone Doji candlestick pattern with other methods will prove its significance and confirm its validity. Whether it be the use of technical indicators with breaks of support and resistance or retests of supply and demand zones. Combining the pattern with strategy is a necessary risk management tool.
It is important to also note that the candle has less importance in a non-trending market. If the market has no clear trend, meaning it is not clearly breaking highs or lows, you will see the movement as sideways with price moving within set ranges or consolidating. This means that if the market is ranging, the significance of the Gravestone Doji candlestick pattern will be less reliable when it occurs in that kind of price squeeze.
How to Trade the Gravestone Doji Candlestick Pattern
After a trader has confirmed the validity of the Gravestone Doji candlestick pattern, they can then decide how to react to a current trade position or how to enter a new trade position given the trend reversal.
If the Gravestone Doji is valid, a trader can decide to exit a bullish position they may have already opened. When a trader projects the price of a stock to increase, they create long positions or options called trade positions. If the Gravestone Doji appears, and you are short-term trading, it may be in a trader’s best interest to get out of their current long positions. Securing profit is crucial since the price is projected to now go down.
If a Gravestone Doji is valid, a trader can also see the candle’s information as an opportunity to open a new trade position. Taking advantage of the downside. If the trend reversal is confirmed and going down, a trader can consider taking a bearish trade entry. This means exercising short positions or an option put, projecting price will continue its downtrend.
Entering these trade positions should be executed with a combination of other technical indicators and the use of trading strategies. The Gravestone Doji should not be confirmation enough to enter a trade.
Summary: The Gravestone Doji Candlestick Pattern
The Gravestone Doji candlestick pattern is typically a bearish reversal pattern. When the buyers have lost momentum, the price of the stock no longer increases, and the price breaks down, signaling a trend reversal.
Although it presents a potential trigger to implement a trade, it is important to confirm the Gravestone Doji candle’s information first. By looking at volume and other technical indicators before taking that risk.
The opposite candlestick pattern to the Gravestone Doji is the Dragonfly Doji. It’s the same phenomenon, but the shape is opposite, and trend reversal.
Like all candlestick patterns, it is useful to test them on the asset you trade with, using your personal trading strategies to base effectiveness and provide a form of risk management.
Resources to Check Out
Check out other articles:
Click Here: Top 4 Doji Candlestick Patterns
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