Gravestone Doji Candlestick Explained

A gravestone doji is a bearish reversal candlestick pattern that forms when the open and close prices sit close together, with a long upper shadow.

The long upper shadow shows that early buying pressure in the session was overwhelmed by sellers by the close, and this candle often shows up before a longer-term downtrend.

What Does a Gravestone Doji Look Like?

The chart pattern for a gravestone doji is an inverted candlestick shaped like an upside-down T, forming when the open and close prices are nearly equal with a spike higher during the candle’s timeframe. The most important part of a gravestone doji is the long upper wick.

What Does a Gravestone Doji Tell You?

A gravestone doji pattern signals that a bearish reversal may be coming. The open and close prices don’t need to be exactly equal for the pattern to be valid, but there should be a relatively small lower wick and a long upper wick — otherwise the pattern could be classified as an inverted hammer, a shooting star, or a spinning top.

Here, the market is telling you that buyers tried to push to new highs during the candle’s timeframe, but sellers pushed price action back toward the open by the candle’s close — so the long upper shadow represents the bulls losing momentum.

The long upper shadow matters for the gravestone doji pattern because technicians generally read it as the market testing for a possible area of supply and resistance, where buyers were rejected by sellers as they pushed prices higher.

A resistance area then sits at the candle’s high, and selling pressure pushes the price back down toward the open — so the advance was rejected by sellers.

A gravestone doji can also appear at the end of a downtrend, though it’s more commonly found at the end of an uptrend. Despite being a fairly common pattern, the gravestone doji has the same reliability issues as many Japanese candlestick patterns in general — traders typically won’t act on a gravestone doji unless the next candle provides confirmation of the reversal.

Also read: Marubozu candle guide

How to Trade a Gravestone Doji

Traders often exit long positions or enter short positions after spotting a gravestone doji pattern, though it’s important to use this candlestick pattern alongside other forms of technical analysis as confirmation. Traders will often also look at the trading volume associated with the candle, plus the activity of prior sessions, as possible indicators of the pattern’s reliability.

In the example below, the gravestone doji may point to further downside from current levels toward closing a gap near the 50- or 200-day moving averages at specific respective levels.

In the chart above, the market started by testing a support area that would put the market at resistance at the highest level of the day, then pulled back to the open price. After an uptrend, a gravestone doji can signal to traders that the upward move may be over and that it may be better to exit long positions.

Difference Between a Gravestone Doji and a Dragonfly Doji

The opposite pattern to the gravestone doji is the bullish dragonfly doji. A dragonfly doji looks like the letter T and forms when the candle’s high, open, and close are all close together.

Although these two formations are often discussed as separate patterns, they’re essentially the same phenomenon. On confirmation, one can be described as bullish and the other as bearish, but sometimes they can appear in the opposite scenario.

For example, a gravestone doji can follow an uptrend, or a dragonfly doji may appear before a downtrend. Both patterns need volume and the next candle for confirmation, and it can help to think of both patterns as visual representations of uncertainty rather than as strong bearish or bullish signals on their own.

Drawbacks of the Gravestone Doji

A gravestone doji pattern can be used to help place a stop-loss and outline a profit-taking plan in a downtrend, but these are less precise methods than other technical indicators provide. Reliability increases with volume and a confirmation candle, but the gravestone doji pattern works best when it’s combined with other technical tools for trading decisions.

FAQ

What is a shooting star candle?

It’s a single candlestick pattern found in an uptrend. The candle can mark the top of a move, though the level is often retested. A shooting star forms when price opens high, trades well above that, then closes near the open. This bearish reversal candle resembles an inverted hammer, except it’s bearish.

What are the types of Japanese candlesticks?

There are three types of candlestick patterns: single, double, and triple, depending on how many sticks the pattern is made of. Past performance doesn’t guarantee future price movement, but these patterns can be useful when spotting potential setups.

How do you read Japanese candlesticks?

Japanese candlesticks are formed using the open, high, low, and close of the chosen timeframe. If the close is above the open, a hollow candlestick is drawn (usually shown in white). If the close is below the open, a filled candlestick is drawn (usually shown in black).

What does a doji candle indicate?

A doji is a single candlestick pattern that forms when the open and close prices are equal. The lack of a real body conveys a sense of hesitation, or a tug-of-war between buyers and sellers, and it can mean the balance of power is shifting.

How do you read candles in general?

A candle has a wide part called the “real body,” which represents the price range between the open and close of that period’s trading. When the real body is filled or black, it means the close was lower than the open. If the real body is hollow, it means the close was higher than the open.

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