【candlestick classroom】 Bullis/bearish gravestone doji, etc

wsjboy

  • After an established bull trend a blue candle forms, closing at the upper trading range near the days high
  • The second day can be a doji day (identical open and close). The upper wick of the second day should be fairly long.
  • The lower wick of the second day should be non-existent or very little.


In a bullish trending market the gravestone illustrates an unsustainable bull rally where price drives up to new highs in trading on day two, but sellers take control by market close.

Although this formation is a moderate to weak in signal strength, it is a warning for longs that the uptrend is losing momentum and bears may retake the market soon.

Most candlestick analysts will wait to confirm the signal, watching for a red candle for day three. Such confirmation could come in the form of the consistent bearish Evening Star pattern.

The Gravestone Doji pattern is similar to the Doji star, except its second day is characterized by a gravestone (doji with a high high and low equal to open and close prices) rather than just a doji. The Gravestone Doji is less reliable since the rally on day-two suggests bulls may still be in control of the market, despite the recent sell-off. Where the Doji Star offers a stronger signal of uncertainty of possible reversal in trend.

In non-FX markets traders accept a gap between day one and day two (a seen in the equity example above). Since such gaps are unlikely in the 24 hour Forex Market, when this pattern is translated into FX the gravestone could also appear like a shooting star and still be of the same signal strength.

Regarding strength of signal, the more day-twos candle looks like a Doji the more it reflects sellers taking control of the bull rally, and the stronger the bearish signal.

wsjboy

• The first day is a red day confirming a bearish trend, closing at the lower trading range near the days low
  • The second day is gravestone doji day, one that has the identical opening and closing price, but the upper wick should be well into the previous days body.
  • The lower wick of the second day should be non-existent or very little.


In a down trending market, buyers rally price briefly, but are not able to get the market to close above the days open. This forms the classic Gravestone Doji, named for its apparent similarity to the traditional gravestone.

Although this formation is weak in signal strength, the rally illustrated by the Gravestone Doji higher wick is a warning for shorts that the downtrend is losing momentum and bears may retake the market soon.

  • Gravestone Doji Market Psychology
Any Doji candle by definition has the close at or near the close price. Gravestone Dojis have a high wick reflecting a rally during the days trading. Candlestick traders will watch the following day to see if buyers are able to take control of the market trend. When day-threes price holds above the Greavestone Doji, it suggests that short positions may cover their exposure, closing out their sell positions and leading to the weakening of the bear market. Many bottom pickers will start buying once that occurs, leading to a bullish reversal.

Confirmation for the Gravestone Doji pattern is strongly suggested for this pattern.

  • Gravestone Doji vs Inverted Hammer Formation
An Inverted Hammer pattern is similar to the Gravestone Doji pattern, except its second day is characterized by a small body rather than a clear doji. The Gravestone Doji is a more reliable than Inverted Hammer.

wsjboy

a failed example. Make sure to get an confirmation before you act on it!!!!

wsjboy

See what happened around this gravestone: