Bulkowski’s Dragonfly Doji

Written and copyright © 2008-2009 by Thomas N. Bulkowski. All rights reserved.

In my book, Encyclopedia of Candlestick Charts, pictured on the right, I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines in the tests.

The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines, performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators), and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy by clicking on the above link.

The dragonfly doji is an interesting name for a candle that is supposed to act as a bullish reversal. It is a reversal candle, but only half the time. Random, in other words. If you see a dragonfly doji in the bush, do not be frightened. The 10-day performance after the breakout ranks it 98th out of 103 candles, where 1 is best. In other words, ignore it. Its bite is usually not fatal. Usually.

Important Results

Theoretical performance: bullish reversal during a decline, otherwise indecision Tested performance: Reversal 50% of the time Frequency rank: 44 Overall performance rank: 98 Best percentage meeting price target: 80% (bear market, down breakout) Best average move in 10 days: -5.02% (bear market, down breakout) Best 10-day performance rank: 17 (bull market, down breakout) All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.

Dragonfly Doji

Discussion

Based on how the dragonfly doji works in the marketplace, it acts as a reversal 50% of the time. Thus, it is neither a reversal nor a continuation candle. It represent indecision. Because the lower shadow is so long and the closing price is pegged at the top of the candlestick, upward breakouts predominate. A frequency rank of 44 means it is more plentiful than many other candles, so you should see it often in a historical price series. The performance rank, at 98, is near the bottom of the list. Do not expect price to trend for long after a dragonfly doji.

The 80% meeting the measure rule target is a good score. In a bear market after a downward breakout (which is rare), the decline is quite respectable: 5.02%, but the best 10-day performance rank (17) occurs after a downward breakout in a bull market. I would have expected that a bear market would score higher, but other candlesticks seem to disagree.

Identification Guidelines

Three Trading Tidbits

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book where the tips appear.

1. Dragonfly doji that appear within a third of the yearly low perform best -- page 205.
2. Dragonfly doji break out upward most often -- page 207.
3. For those Dragonfly doji in which the opening and closing prices are different, white bodies perform best after upward breakouts, and those with black bodies outperform after downward breakouts -- page 207.

Example

The daily chart shows a dragonfly doji (A) at the end of an uptrend. The long lower shadow would suggest a bullish move according to some authors on candlesticks. However, when the opening and closing prices match, it speaks of indecision.

In this example, price breaks out downward and when that happens, the move can be a decent one. Price retraces about half of the prior up move before resuming the rise at a more leisurely pace.

-- Thomas Bulkowski