What is Gravestone Doji? - Meaning, Types and Examples
In technical analysis, the gravestone doji is a candlestick pattern that indicates a possible bearish reversal. It has a long upper shadow and almost no lower shadow, indicating that buyers lost control at the end of the session. Let’s move ahead in this blog and learn more about gravestone doji candlestick pattern meaning, types and examples.
Key Highlights
- The gravestone doji is a bearish pattern, suggesting a reversal followed by a decline in the price action.
- An inverted T, with a long upper shadow, represents the pattern.
- A gravestone pattern can indicate when to enter a bearish trade or take profits in a bullish position.
What is Gravestone Doji?
The gravestone Candlesticks signal the price reversal. One of the many doji formations available is gravestone doji. The Gravestone indicates the possibility of a bearish reversal while the market is on an upward trend. It resembles an inverted or upside down “T”. Gravestone doji occurs when there is no change in the open, low, or close prices and buyers who are already in the market try to drive prices higher. The long upward shadow on the market shows that it's looking for and found a high resistance level. The bulls tried to push the price up, but a heavy selloff eventually won out and completely ignored the rising trend.
How Was The Gravestone Doji Candlestick Pattern Formed ?
The gravestone doji is formed when the price closes at or is near the same level as when it opened. The bull encounters stiff competition when the gravestone is at its peak. As a result of this selling pressure, prices temporarily return to their initial level. This indicates that the market has rejected the bull run. In this case, traders will either open short positions or close long positions immediately after the arrival of the gravestone doji. This pattern will help traders visualise a resistance level that could be tested in the coming days. In most cases, gravestone doji appears at the top of a rising trend line. But it is always at the bottom of an ongoing downturn.
A gravestone doji develops when the bulls are able to push prices upward. However, when gravestone doji hits the day's high, a zone of resistance forms, and selling pressure drives the prices down to the opening level of the session. This suggests that the markets have fully rejected the bullish upward trend that was observed.
Examples Of Gravestone Doji
One of the best examples of gravestone doji is the case of Adani Ports.
On May 22, 2015, a gravestone doji formation appeared in the Adani Ports daily chart. A previous rally from levels Rs. 300 to Rs. 348 helped form the Doji. After the gravestone doji formed, the stock price increased 16 per cent. Then it declined 15 per cent, from Rs. 350 to Rs. 298.
Gravestone Doji Vs. Dragonfly Doji
The Dragonfly Doji represents the opposite pattern of the gravestone doji. It takes the form of a "T" and occurs when the high, open, and close of the session are either equal or very close. This pattern is characterised by a long lower shadow, indicating significant selling activity during the period. While these two formations are often observed separately, they essentially depict a similar market trend. When confirmed, one can be described as bullish and the other as bearish.
The gravestone doji may be succeeded by an uptrend, while a bullish dragonfly could emerge before a downtrend. Rather than being purely bearish or bullish signals, it is more beneficial to consider both patterns that represent uncertainty.
Limitations of Gravestone Doji
The major drawbacks of gravestone doji are as follows.
- Gravestone doji is a less precise technical indicator. When combined with other indicators, gravestone doji can be more effective while trading.
- It is very rare to find ideal gravestone dojis where the open, low, and close are at the same level.
- It's common for traders to spot the wrong gravestone dojis whose bodies or the lower shadow are slightly visible.
- The gravestone doji works best only after an upward trend.
Conclusion
Many traders use charts, patterns and other tools for trading based on past performance, market volumes and price history. The gravestone doji is one of those tools. It has the shape of an inverted T in a cluster of candles on a chart. It is a bearish signal that suggests a price movement downturn and a close reversal. While trading, the trader knows how to use the gravestone Doji and combines it with other technical instruments which can help in reducing losses.
FAQs on Gravestone Doji
How to trade a gravestone doji?
To trade a gravestone doji, wait until the next candle closes below the gravestone candle's lower level. Start a short-selling position as soon as you have identified the candlestick pattern at the top of an uptrend.
What is the difference between a shooting star and a gravestone doji?
The shooting star and gravestone doji are both regarded as bearish reversal patterns. However, a shooting star should ideally close at the bottom of the candle with a short (red) body, while a gravestone doji’s open and close are at the same price or very near it.
How to use Gravestone Doji?
You should short the stock when a candle is closing under gravestone doji's little body. There should be a stop loss on every gravestone Doji. Place them above the highest point of each candlestick.
What are the characteristics of a gravestone doji?
The main features of the gravestone doji are the opening and closing prices near the lowest price, a long upper shadow, and little to no lower shadow, which represent the struggle between buyers and sellers.
Are Doji patterns bullish or bearish?
When doji candlestick patterns emerge at the end of an upward trend, they are thought to indicate a bearish trend reversal. When they appear at the end of a downward trend, they suggest a bullish trend reversal.
