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Gravestone Doji in Forex - What You Need to Know

What is the Gravestone Doji candlestick pattern? This article covers the definition, interpretation, and trading of Gravestone Doji.


Hello dear readers. Japanese candlestick formations stand out when trading in financial markets. These candlesticks reflect all the events between buyers and sellers on charts. If we can understand the nature of these candlesticks, we can gain some insight into the future direction of prices. Within Japanese candlesticks, a part of technical analysis includes Doji candlesticks. In this article, we have decided to provide information about one type of Doji candlestick known as the Gravestone Doji.

Topic: Gravestone Doji

Type: Bearish

Trend direction: Reversal

Opposite pattern: Dragonfly Doji

Definition of the Gravestone Doji candlestick

The Gravestone Doji, another member of the Doji candlesticks family, is sometimes also referred to as the Inverted Umbrella. It is a well-known single candlestick chart pattern in technical analysis and often signals a price reversal. The Gravestone Doji is a candle formation where the opening and closing prices of a candle are close or identical, but the upper wick is much longer than the body. This pattern is a tool used to analyze price movements, especially in financial markets, and is seen in candlestick charts. The Gravestone Doji represents a candlestick where the opening and closing prices are nearly the same during the time period it forms. The gravestone doji is defined as follows:

  • The gravestone doji appears as a candlestick with a long upper shadow. The upper shadow shows the highest price level.
  • The lower shadow may be short or have no shadow at all. This means that the lower shadow should be very short or nearly nonexistent.
  • The opening and closing prices are very close together or nearly the same, so the body of the candlestick that forms the gravestone doji is very small or often looks like a straight line.
Gravestone Doji candlestick pattern, a bearish reversal candlestick pattern that occurs when the open, low, and closing prices are all near each other with a long upper shadow.
Gravestone Doji Candlestick

This pattern suggests that traders are not sure whether to buy or sell an asset. The gravestone doji can indicate a period of indecision or consolidation in the market.

Interpretation of the Gravestone Doji

The Gravestone Doji indicates an imbalance between buying and selling forces. This situation suggests that the market is in uncertainty and expresses indecision about which direction the price will move. After the opening price, the price starts to rise, but bears maintain pressure and bring the price back to the opening level. The long upper wick of the candle indicates the strength of bearish pressure. Additionally, the closeness or similarity of the opening and closing prices may signify an imbalance between buyers and sellers. The Gravestone Doji often forms at the end of an uptrend, signaling possible market weakness or the start of a downtrend. If the Gravestone Doji appears at the end of a downtrend, it may indicate the market is beginning to stabilize or a new uptrend could be starting.

Note: The Gravestone Doji and Dragonfly Doji are candle formations that are opposite to each other. The Gravestone Doji is often seen at the end of an uptrend or near resistance levels, and is interpreted as a reversal signal. The Dragonfly Doji is often seen at the end of a downtrend or near support levels, and is interpreted similarly as a reversal signal.

Trading with Gravestone Doji

We can use the gravestone doji candlestick pattern to identify entry (buy) and exit (sell) points in financial markets. This candlestick is most commonly known as a bearish candlestick. However, it can also be interpreted as bullish at times. When trading in financial markets with the gravestone doji, we follow some guidelines:

SELL (Short) Orders:

If the Gravestone Doji forms at the end of an uptrend or near an important resistance level, and other technical indicators are also giving sell signals, it could be a good sign for a selling opportunity. For this, the Gravestone Doji should appear on a chart where the previous candle is part of an uptrend. If the price shows a downward movement in the candles following the Gravestone Doji and this movement takes the closing price below the Gravestone Doji, it is interpreted as a more definite sell signal. Additionally, if the Gravestone Doji appears with high trading volume, it can help strengthen the sell signal. The Stop Loss level is set slightly above the highest point the price reached (the tip of the wick), just a bit above the resistance level. You can determine the Take Profit level based on your risk/reward ratio strategy. For scalping, the Take Profit level is set to the length of the wick (shadow). The Gravestone Doji candlestick that appeared on the 4-hour chart of Euro/British Pound below is an excellent example of a reversal in the uptrend:

Gravestone Doji candlestick pattern formation on the 4-hour chart of EUR/GBP, indicating a possible reversal from the uptrend.
Bearish Reversal Signal with Gravestone Doji on EUR/GBP chart

BUY (Long) Orders:

If a Gravestone Doji forms at the end of a downtrend or near an important support level, and other technical indicators are also giving buy signals, this could be a likely buying opportunity. If the price shows an upward movement in the candles following the Gravestone Doji, and this movement carries the closing price above the gravestone doji, this can be interpreted as a buy signal. Stop Loss level is set slightly below the lowest point the price reached, just a bit below the support level. You can determine the Take Profit level based on your risk/reward ratio strategy or use Fibonacci retracement levels. You can look at the example below on the 4-hour chart of the Australian Dollar/US Dollar, where the Gravestone Doji signals a reversal at the end of a downtrend:

Gravestone Doji candlestick pattern signaling a possible reversal in a Forex chart of Australian Dollar/US Dollar (AUD/USD) on a 4-hour timeframe
Gravestone Doji as a Buy Signal on the AUD/USD chart

In addition to all of this, Gravestone Doji candlesticks can not only signal trend reversals, but also indicate the continuation of the trend. If this candlestick appears when there are strong trends in the market, the trend is likely to continue. It is important to always consider the next confirmation candle. Now you can see an example of this on the 4-hour chart of the US Dollar/Canadian Dollar:

Gravestone Doji candlestick pattern has formed on the 4-hour chart of the US Dollar/Canadian Dollar (USD/CAD), suggesting both uptrend and downtrend continuation possibilities.
Gravestone Doji as a Contiuation Signal on the USD/CAD chart

Please keep in mind that the Forex market involves risks. While it can bring profits, capital loss is also possible. Remember that sometimes the Gravestone Doji alone may not provide a definite buy or sell signal. Market conditions, other candle formations, technical indicators, and fundamental analysis factors should also be considered.

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