Dragonfly Doji

The Dragonfly Doji is a significant bullish reversal candlestick pattern that mainly occurs
at the bottom of downtrends.

The Dragonfly Doji is created when the open, high, and close are the same or about the
same price (Where the open, high, and close are exactly the same price is quite rare). The
most important part of the Dragonfly Doji is the long lower shadow.

The long lower shadow implies that the market tested to find where demand was located
and found it. Bears were able to press prices downward, but an area of support was found
at the low of the day and buying pressure was able to push prices back up to the opening
price. Thus, the bearish advance downward was entirely rejected by the bulls.

The chart below of the mini-Dow Futures contract illustrates a Dragonfly Doji occuring
at the bottom of a downtrend:
In the chart above of the mini-Dow, the market began the day testing to find where
demand would enter the market. The mini-Dow eventually found support at the low of
the day, so much support and subsequent buying pressure, that prices were able to close
the day approximately where they started the day.

The Dragonfly Doji is an extremely helpful Candlestick pattern to help traders visually
see where support and demand is located. After a downtrend, the Dragonfly Doji can
signal to traders that the downtrend could be over and that short positions should
probably be covered. Other indicators should be used in conjunction with the Dragonfly
Doji pattern to determine buy signals, for example, a break of a downward trendline.

The bearish version of the Dragonfly Doji is the Gravestone Doji (see: Gravestone Doji).