Is the Dragonfly Doji Candlestick Pattern a candle that could generate profits for you?
The Dragonfly Doji Candlestick is the polar opposite of the Gravestone Doji Candlestick. Whereas the Gravestone Doji is commonly thought of a signal of bearish times ahead, the Dragonfly Doji is a sign that the market environment is ready for a change. The Dragonfly Doji candle while being part of the Doji family is much like a Hammer. This is an opportunity to learn more about the Dragonfly Doji and read if it handles the testing conditions well.
Let’s get started!
What is a Dragonfly Doji?
The Dragonfly Doji Candle is simply a candle in which the Open, High, and Close all happen to be the same price. This is a tougher candle to find on a higher timeframe chart due to the confluence of events happening within a particular period that is represented by a candle. A lot can happen in an hour, 4 hours, a day or a week. It’s more practical to test it out on a lower timeframe chart so that the odds of finding this candle out in the wild are much higher.
The Dragonfly Doji in theory is supposed to result in a bullish reversal or even continuation in some cases. This will actually be tested out.
Testing the Dragonfly Doji Candlestick Pattern
The first matter at hand is not whether it works effectively in predicting future price movement, but rather how often it appears. If it does not appear often enough, it is simply a moot point continuing forward. The following are the findings from June 1, 2016 through May 31, 2018.
EURUSD: 98 Instances on a 5 Minute Chart
USDJPY: 90 Instances on a 5 Minute Chart
With an arbitrarily small 8 pip Take Profit and 8 pip Stop Loss, these were the results yielded. It should not mean too much, but it speaks to how many trades could possibly be executed without any sort of criteria associated with the candlestick. The following conditions will be tested.
- Reversals
- Continuations
- Supply and Demand
Dragonfly Doji as a Reversal Candle
EURUSD
AUDUSD
USDJPY
No entries in reversals, which is why AUDUSD was inserted.
Dragonfly Doji as a Continuation Candle
EURUSD
USDJPY
AUDUSD
Dragonfly Doji with Supply and Demand
EURUSD
With such a small amount of entries for EURUSD and no entries for USDJPY, this is not the best way to evaluate the Dragonfly Doji, but it is worth the examination anyway.
Conclusions Drawn
The Dragonfly Doji does not happen frequently, but it can happen enough that when allowing for entries from multiple currency pairs on a short timeframe like a 5 Minute Chart, it can be effective. It seems to have better results from being used as a Bullish Continuation Pattern rather than a Reversal Pattern. However, there are more instances of Reversal Entries with AUDUSD and EURUSD than USDJPY.
There’s a lot of potential for the usage of the Dragonfly Doji at least based on this sample period of time and under the testing conditions.
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