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. Here, we'll provide information about one specific type of Doji candlestick, known as the Gravestone Doji.
- Topic: Gravestone Doji
- Type: Bearish
- Trend direction: Reversal
- Opposite pattern: Dragonfly Doji
What is the Gravestone Doji Candlestick?
A Gravestone Doji is a reversal candlestick that occurs when the open, low, and close prices are all near the same level, with a long upper shadow. 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 candlestick most often appears at the end of an uptrend and can be a signal of a possible reversal. This means the price might start to fall soon. However, it can also appear during a downtrend, though this is less common. In such cases, it might show that sellers are still in control, or sometimes it can even act as a continuation signal, meaning the current trend may keep going. This candlestick 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.
What Does a Gravestone Doji Mean?
A Gravestone Doji is a candlestick that often looks like an inverted "T" shape on the chart. It forms when the price opens, moves up strongly, but then falls back down to close near the opening level. This shows that buyers tried to lift the price, but sellers stepped in and pushed it back down. The long upper shadow shows strong selling pressure after early buying failed to hold.
It is called a "gravestone" because its shape looks like a tombstone, standing tall above a flat base, symbolizing the "death" of a previous move in the market. The simple inverted "T" shape gives a visual warning that the balance between buyers and sellers may be changing.
Gravestone Doji Color
The color of a Gravestone Doji can be either green or red, but the meaning stays almost the same. The shape of the candlestick is more important than its color. A Gravestone Doji color depends on where the price closes compared to where it opens.
A Green Gravestone Doji forms when the closing price is slightly higher than the opening price. This means buyers had a small advantage, but sellers still pushed the price down from the top. It can still show weakness at the end of a move, even if the candle is green.
A Red Gravestone Doji appears when the closing price is a bit lower than the opening price. It looks almost the same as the green version but shows a little more selling pressure. Many people see the red gravestone doji as a stronger sign of a possible reversal, especially after a rise in price.
A Black Gravestone Doji forms when the closing price and the opening price are almost the same. It means there is very little difference between where the price started and where it ended. This shows a strong balance between buyers and sellers after the market tried to move higher but lost strength. The black gravestone doji is quite rare and can appear when the candle body is so small that it looks black instead of red or green. It still carries the same message that the market faced strong selling pressure after an attempt to rise.
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| Gravestone Doji Candlesticks |
Let's simplify. A green gravestone doji forms when the closing price is a bit higher than the opening price. A red gravestone doji forms when the closing price is a bit lower than the opening price. A black gravestone doji appears when the closing and opening prices are almost the same, and it is very rare. All three show that the market tried to rise but lost its strength in the end. In all cases, the gravestone doji color shows how the battle between buyers and sellers ended. No matter if it is green, red, or black, the long upper shadow and the small or flat body make the gravestone doji an important warning sign on the chart. It tells that the market tried to go higher but could not keep the move.
🛈: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.
How to Trade 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. We can use the gravestone doji candlestick 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. It is important to wait for confirmation before making a move, such as a strong candle in the same direction after the candle appears. The gravestone doji works best when it forms near key support or resistance levels. It should not be used alone but together with other signals or indicators. Always manage risk with stop-loss orders, as the market can change direction quickly even after a clear signal.
Gravestone Doji in Uptrend
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.
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| Bearish Reversal Signal with Gravestone Doji on EUR/GBP. |
Gravestone Doji in Downtrend
If a Gravestone Doji candle 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:
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| Gravestone Doji as a Buy Signal on the AUD/USD. |
A Gravestone Doji candle in a downtrend is rare, but when it appears, it can be important. It often forms near the end of a falling move, showing that the downtrend may be ending. In this case, the market tries to fall but loses strength, and buyers start to step in. When a gravestone doji candle in a downtrend forms, it can mark the point where prices stop dropping and begin to rise again, just like in the example above.
Gravestone Doji as a Continuation Candle
Besides all 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:
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Sometimes, a gravestone doji candle can act as a continuation signal both in a downtrend and in an uptrend. This means the price may keep moving in the same direction after the candle appears. In some cases, it may also show that the market is losing strength and could soon change direction. Whether in a downtrend or an uptrend, the long upper shadow and small body of the gravestone doji candle tell the same story that buyers tried to push the price higher but could not keep it there.
⚠ 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.