In trading and technical analysis, a gravestone doji is a variation on the standard doji that presents when traders are looking for support or resistance levels. The gravestone doji is formed when the close is at or near the low of the open and high of the day. The result is a candlestick chart pattern that looks like a gravestone. Many traders see it as an indication that the trend is reversing, though other traders feel it represents indecision in the marketplace.
What Does the Gravestone Doji Candlestick Mean?
The gravestone doji is a three-candle pattern that looks like a “T.” The first candle is a doji. The second candle opens at the high of the day and closes at or near its low. The third candle’s open is at or near its high, and close is near its low. It’s said to resemble a gravestone, hence the name.
Where Does the Gravestone Doji Candlestick Come From?
The term gravestone is said to have been coined by a stock trader named A. J. Frost. Like other doji patterns, the gravestone doji is thought to be a variation of the regular doji. However, Frost reportedly coined the name because it resembles a gravestone.
How to Trade a Gravestone Doji Candlestick Pattern
A gravestone doji typically behaves as support. Traders who find the pattern in their charts may use it as an uptrend sign. However, it may also be used as a short entry signal for short-term trading. The gravestone doji can be used to identify the start of an uptrend after a downtrend. The pattern might look something like this:
1. Price hits a low of the day
When price breaks beneath the gravestone doji, it’s a bearish signal suggesting further decline. Traders might begin to look for sell opportunities and liquidate long positions or short sell.
2. Price rises in an attempt to breach the doji’s support level
If the price cannot exceed the gravestone doji’s resistance level, it suggests weakness. The failure to break above the resistance could lead traders to exit long positions or liquidate any short positions.
3. Price breaks support, signaling a bearish trend
When price breaks the gravestone doji’s support level, it suggests a bearish trend is in development. This could lead to a selloff, and any short positions might be liquidated.
4. Price resumes above the support and extends its gains
If the price breaks past the doji’s resistance level, it suggests that a reversal is in development. Traders might look to buy back any short positions they may have made as the gravestone doji’s support level proved to be a reliable barrier.
5. Price enters a new uptrend
When the price breaks above the doji’s resistance level and closes above its high, it signals a new uptrend is in development. Traders might look to buy back any long positions they may have created.
6. Price breaks below the doji’s support and then rebounds
When price breaks beneath the doji’s low, it indicates a change in trend. The break below the support level signals a continuation of the previous bearish trend, resulting in more selling pressure.
Gravestone Doji Candlestick and Blockchain
Traditional candlestick charting techniques might be adapting to the blockchain as a new way of doing things. The gravestone doji’s support or resistance pattern will be necessary for blockchain trading as traders look for price action confirmation that might indicate bullish or bearish trends. When price fails to maintain a trend for a sustained period, it might signal a reversal. The reversal could offer an opportunity for traders looking to sell an asset or buy a put option to hedge against the decline.
Comparison to the Doji
The doji is considered a neutral pattern, meaning that it neither supports nor opposes trends. A gravestone doji, on the other hand, can signal support or resistance depending on how price behaves after it opens.
What Problem Does the Gravestone Doji Candlestick Solve?
In candlestick charting, dojis are usually interpreted as a bullish or bearish signal. That’s because they occur when the open is near the previous day’s low. When that happens, the price has momentum going into the open, but it may not be able to maintain a sustained uptrend or downtrend. Some traders might interpret dojis as a sign that the market is about to change directions.
Disadvantages of the Gravestone Doji Candlestick Pattern
Inevitably, there is some disagreement about what a gravestone doji means for an asset’s future price action. Some argue that it indicates a reversal of a trend. Others say that it indicates a continuation of a trend. Still, others maintain it’s best to wait on making any decisions until the next candle is formed.
The Future of the Gravestone Doji Pattern
In the future, dojis are likely to continue to be interpreted as bullish or bearish signals. They’re considered no different from other candlestick patterns. Traders will continue to look for price action confirmation that the doji’s bullish or bearish signal might indicate. The gravestone doji candlestick pattern is likely to be one of the patterns subjected to further study as part of a more considerable effort to improve predictive accuracy.
Where Can I Find Doji Candlesticks?
If you’re looking to trade the doji candlestick, you will likely find it on any platform that supports candlesticks. You can access candlestick charts on most professional trading platforms and even on some free ones.
Dojis have a reputation for being indecisive, but they can be interpreted in reality in several ways. In fact, there are many different ways that you can interpret the gravestone doji candlestick pattern. A doji is sometimes referred to as an “invisible” candlestick because its open and close are not clearly visible. Other traders might refer to it as a gravestone doji because its long upper shadow resembles a gravestone.
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