Gravestone doji candlesticks are reversal candles at the top of an uptrend or near resistance levels. They are shaped like an upside-down T with a slim real body and signify a possible reversal to the downside. Look for the price to fall below this candle to confirm the reversal.
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Gravestone doji candlesticks are a member of the doji family. They are typically found in up trends, signifying a potential reversal to the downside. They have a small, flat real body, longer upper wick, and look like an upside-down T.
Gravestone doji candlesticks make up candlestick patterns and tell a price action story. A “GS” candlestick is a bearish candle. Plain and simple.
This candlestick can be found in bearish trends. However, it’s typically found in a bullish trend that’s about to reverse.
Basics
This is an example of a perfect-looking gravestone doji pattern. It looks like an upside-down “T” pattern with little to no real body. The gravestone could be either a bullish candlestick or a bearish candlestick. This example shows a bullish color gravestone. It doesn’t matter what the color is. What matters is where these patterns occur, near resistance levels or the top of trends. When you see this pattern, be aware of a change in trend to the bearish side.
To trade this pattern, traders take a short entry when the price fails the low of the gravestone doji. They use the top of the candle area as a stop level.
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Patterns
What do gravestone doji candlestick patterns tell us when stock trading? First, while they can be found at the end of a downtrend, they’re mostly found in an uptrend when a stock is about to reverse.
Its open price and the close and low of the day are all near each other. The high of the day creates a long shadow. The gravestone doji candlestick is an upside-down T.
That long upper wick tells us the bulls had control throughout the day. Then the bears came in and drove the price back down to end the day, forming the pattern. It shows strong bears during that time frame. An even stronger confirmation would be if found near a key support or resistance level.
It is important to remember that different dojos may look similar; however, they all have that really short body that tells us that the day ended in indecision.
Learn to feel the flow of the candlestick chart without being caught up in the exactness of the candle.
What Does It Indicate?
Gravestone doji candlesticks are bearish indecision candles. These dojis may signal the trader to take their profits or losses. A trader going short or buying put options could see this and make that trade.
As always, the reversal signal of a gravestone doji needs confirmation and depends on price action. If you can’t read the price action, it will cause you many headaches. Technical analysis also comes into play and is an important part of a gravestone doji candlestick pattern.
Gravestone Doji Candlestick Trading Strategy
- Traders take a short at the break of the low and use a close above the high as a stop.
- They might take a long position when the price breaks above the candlestick’s high.
- Then use a candlestick close below the low as a stop level.
Gravestone Doji Candlestick Example
The two examples in this chart are examples of imperfect-looking gravestone dojis. They almost look like shooting star patterns, with bigger real bodies. What matters the most is what it’s trying to signify, not that the real body is perfectly level. You’ll see that price action went bearish once these patterns formed.
The first gravestone doj formed at the top of a rising wedge pattern, and the second formed at the top of a bear flag pattern that turned into a falling wedge pattern.
This is an example of two gravestone dojis on a 5-minute chart of $MMM. The first one looks more like a gravestone, and the second one has a bigger real body and looks like a shooting star. Both are telling the same story that price action failed intraday highs. It formed a double top failure, but it was only temporary. It ended up being a bullish cup and handle breakout. This pattern also made up a bigger bull flag pattern.
Looks Like Other Patterns
It’s important to remember that some candlestick patterns look like other ones. That’s why it’s important to see where these patterns form and what the bigger overall pattern tells you. The picture above shows a daily chart of $NVDA.
Note the two highlighted areas. At the bottom of the downtrend was a candlestick with a bit bigger of a real body than a gravestone doji, but it was an inverted hammer. See how the candlestick looks similar but tells a different story? This candlestick signaled a bullish reversal.
The top candlestick looked the same as the bottom but was a shooting star. This candlestick has a bigger real body but tells the same story as the gravestone doji. This is a perfect example of two similar candlesticks with different names.
So, three candlesticks that all look similar but one tells a bullish story and the other two tell a bearish story. You’ll notice that the top candlestick rejected resistance in a falling wedge pattern. Seeing gravestone doji or anything similar near resistance levels is something to be aware of because they signal bearish reversals.
Final Thoughts: Gravestone Doji Candlestick
Knowing whether a pattern is a reversal or continuation pattern is important. For example, gravestone doji candlesticks are typically a part of reversal patterns, but that does not mean they do not show up in a continuation pattern.
Traders will see lots of gravestone dojis on a low-volume chart. HFTs or Algos are trading these stocks without “real” buyers.
Just computers are trading with each other on low volume. Don’t fall into these traps! Only buy when volume shows there’s a real presence. So, it would be best to wait until confirmation by the next few candlesticks and moving averages.
Frequently Asked Questions
A shooting star and gravestone doji pattern are both bearish reversal patterns. The only difference is that the gravestone doji has no real body. They are both found near resistance levels and signify a change in trend to the downside.
A dragonfly doj is the opposite pattern of a gravestone doji. It's a bullish pattern. A dragonfly has a "T" shape with equal high, open, and close prices. They are found near support levels and signify a trend reversal to the bullish side.
A gravestone doji is most effective near support levels. They look like a hammer and signify a potential trend reversal to the bullish side.
