Introduction
Gravestone Doji candlestick is one of the candlestick pattern that provides a precise signal to help make money. This pattern appears frequently on the candlestick chart.
What is Gravestone Doji?
Gravestone Doji is one of the various Doji formations available. Gravestone Candlestick signals a price reversal. Gravestone appears during a market uptrend, signaling the possibility of a bearish reversal. It resembles an inverse dragonfly design or an upside down “T”. When the open, low and close prices are all same and buyers already present in the market try to push the prices high, gravestone Doji happens. The market’s lengthy upward shadow shows that it was looking for and finding the upper resistance level. The bulls attempted to drive the price higher, but a big selling binge ultimately prevailed, completely rejecting the upward trend.
How Does the Gravestone Doji Candle Look?
The upper shadow of the Gravestone is quite lengthy, while the body is at the very bottom of the candlestick. This indicates that the open, close, and low prices are all the same. Due to this an inverted T shaped pattern emerges. While the Gravestone Doji is most often seen around the peak of the uptrends, it is sometimes found near the bottom downtrends.
How is the Gravestone Doji Candlestick Pattern Formed?
The Gravestone Doji is formed when the price closes at or near the same level as when it is opened. When Gravestone is at its peak, bulls encounter stiff competition. Due to this selling pressure prices are pushed back to the opening price for a certain period of time. This indicates that the market rejected the bullish surge. Here traders would either open short positions or close long positions immediately after the Gravestone Doji appears. This pattern aids traders in better visualizing the resistance level, which may be tested again in the near future. Gravestone Doji typically appear at the top of uptrends. But it occasionally is found at the bottom of an ongoing downturn.
The construction of the Gravestone Doji pattern occurs when the bulls are able to press prices upwards. But an area of resistance is formed when it reaches the high of the day and the selling pressure pushes the prices back down to the opening of the day.This indicates that the bullish rally upward is seen and has been completely rejected by the markets. It is thus helpful pattern for the traders to visually see where the resistance and supply are likely to be located.
The Different Types of Doji Patterns
There are 4 types of Gravestone Doji
Standard Doji Pattern
A Standard Doji is a single candlestick that does not signify much on its own. Traders can figure out what this candlestick indicates by looking at the price activity leading up to it. For example, a Standard Doji within an uptrend may prove to form part of a continuation of the existing uptrend. However, the chart below depicts a reversal of an uptrend which shows the importance of confirmation post the occurrence of the Doji.
2. Dragonfly Doji
The Dragonfly Doji can appear at either the top of an uptrend or the bottom of a downtrend and signals the potential for a change in direction. There is no line above the horizontal bar which creates a ‘T’ shape and signifies that prices did not move above the opening price.
3. Long Legged Doji
The Long-Legged Doji simply has a greater extension of the vertical lines above and below the horizontal line. This indicates that, during the timeframe of the candle price action dramatically moved up and down but closed at virtually the same level that it opened. This shows the indecision between the buyers and the seller
4. 4 Price Doji
The 4 Price Doji is nothing more than a horizontal line with no vertical lines above or below it. As the candle’s high, low, open, and closure (all four prices indicated) are all the same, this Doji pattern represents the utmost in indecision. The 4 Price Doji is a one-of-a-kind pattern that indicates hesitation or a tranquil market.
Examples of Gravestone Doji
Adani Ports
In the daily chart of Adani ports, we can see a Gravestone Doji formation on the date 22.05.2015. The Doji was formed with a prior uptrend from the levels of 300 to 348. This was a rally of 16 percent and after the formation of the Gravestone Doji, the stock fell from the level of 350 to the levels of 298 which was again a fall of about 15 percent
Gravestone Doji vs. Dragonfly Doji
Dragonfly Doji is the opposite pattern of Gravestone Doji. Dragonfly Doji looks like “T” and it is formed when the high, open and close of the session are all equal or almost same. The Dragonfly Doji pattern has a long lower shadow. This implies aggressive selling during the period of the candle. Although these two formations are talked about as separate entities they are essentially the same phenomenon. When confirmed one can be called bullish and the other bearish. Gravestone doji can be followed by an uptrend or a bullish dragonfly may appear before a downtrend. Gravestone Doji can be formed by an uptrend or a bullish dragonfly may appear before the downtrend. It is perhaps more useful to think of both patterns as visual representations of uncertainty rather than the pure bearish or bullish signals.
Trading with Gravestone Doji at the Top of an Uptrend
If Gravestone Doji is formed after a bullish move, the trader should be ready for price reversal. In fact the trader should expect this pattern at the top of the uptrend most of the time. However it is not correct or doesn’t make any sense to open the position right after the pattern as the uptrend might make another attempt to break the newly formed resistance. Instead the trader should be ready to enter the market with a short position after the first candlestick closes below the Gravestone Doji’s Low. The stop loss of the position should be set right above the high of the pattern, while the take profit target should be double the size of the Gravestone Doji.
Trading with Gravestone Doji at the Bottom of a Downtrend
The Gravestone Doji might show up in a bearish market, but this is a rare occurrence. Here the trend reversal should not be treated as a trend reversal signal because it might now end up with the bullish move. Most of the time it suggests that the bearish move is about to continue hence here it is sensible to open a short position. Bulls who anticipate the reversal of a bearish trend should not go long after spotting this pattern in the middle of a Downtrend.
Limitations of a Gravestone Doji
The Gravestone Doji are less precise method that the technical indicator provides. Gravestone Doji perform much better when it is combined with other technical indicators to guide better trading. Ideal Gravestones in which the open, low, and close are at the same level are very rare. Usually, traders spot imperfect Gravestones whose body is a bit visible, or the lower shadow is a bit visible. Gravestones work best after uptrends. They should not be viewed as reliable signals after downtrends, even though they generally suggest the continuation of the bearish trend. Gravestones accompanied by lower-than-usual volume are not reliable.
Conclusion
Thus many traders use charts , patterns and other tools to do trading and it is based on past performance trading volumes, and price history. One of these tools is the gravestone Doji. The inverted T appears in a group of candles on a chart and is bearish pattern indicating that a reversal is on the horizon with a downtrend in the price action. The trader who knows about the ins and outs of the gravestone Doji and combining it with other technical tools can help minimize the losses while trading.
