What are Gravestone Doji Candlesticks?
It is a reversal candlestick pattern with long upper shadow and with out a real body and lower shadow. It is a simple candlestick pattern made of a single candleline. They are bearish in nature. It is so called because of its resemblance to the gravestone.
They can occur any where on the chart. Buy they have more relevance when they form at the end of an up trend at the resistance level.
It may be a part of a complex candlestick pattern.
The market is in an up trend and at a resistance level. The stock opens and moves in the direction of the trend. After rising for some time, the perception of the market changes. So the prices starts falling down. At the end of the session the price moves towards the opening price and closes at it.
This results in the absence of the real body with only an upper shadow and with out a lower shadow. Market opens and closes at the low of the day. Only an upper shadow is present above a small horizontal line.
This candlestick exhibits a subtle changes of an impending change in the trend. When the market opens in an up trend, there was increased demand than the supply. So the price rises. But over sometime the bears take over. So the supply increases and equals the demand. So the price makes the high for the day.
The change in the trend which is still invisible on the chart, increases the supply more than the demand. The price moves down and closes at the opening. At the end of the session the supply is equal to the initial demand. Both opening and closing are at the low of the day.
At this stage, it should caution us. If there is a long position, it is wise to cover the position if the price falls below the low of the Gravestone Doji.
To short sell, we want to make sure that the trend has changed and falling. So we should wait to see the next day's price movement. If next day is a down day or a black candlestick, sell below the low of the second day change of trend confirmation candlestick. Do not forget to protect your capital by placing a stop loss buy order above the high of the up swing.
If you short sell early in the trend to decrease the risk, on the next day after the Gravestone doji day, watch if the market opens below the low of the doji. If it does sell immediately. Or if the open is above or at the low of the doji day, then sell just below the low as the price falls below the low. As usual the stop loss is above the swing high.
The market can open and close at the high of the day. The resultant formation is a Dragonfly Doji.
Click the link below to read and learn about them.
There are many more simple candlestick patterns used in stock analysis. Some of them are listed below. You may click on the name of each pattern listed below to learn and understand more about them.