Dragonfly Doji Pattern

Overview

The Dragonfly Doji is a single-candlestick bullish reversal pattern that appears at the bottom of downtrends. It has a distinctive T-shape with a long lower shadow and virtually no upper shadow or body, indicating strong buyer rejection of lower prices and potential trend reversal. This pattern shows that sellers pushed price significantly lower during the session, but buyers rallied strongly to close near the open and high.

Pattern Type

• Type: Bullish Reversal
• Candles Required: 1
• Trend Context: Appears after downtrend
• Reliability: Medium to High (when confirmed)
• Frequency: Rare

Usage

Basic Usage

require 'sqa/tai'

open  = [100.0, 98.0, 95.0, 92.0, 90.0]
high  = [101.0, 99.0, 96.0, 93.0, 90.5]
low   = [98.0, 95.0, 91.0, 87.0, 85.0]
close = [99.0, 96.0, 92.0, 90.2, 90.3]

# Detect Dragonfly Doji pattern
pattern = SQA::TAI.cdl_dragonflydoji(open, high, low, close)

if pattern.last == 100
  puts "Dragonfly Doji detected - Bullish reversal signal!"
end

Parameters

Parameter	Type	Required	Description
open	Array	Yes	Array of opening prices
high	Array	Yes	Array of high prices
low	Array	Yes	Array of low prices
close	Array	Yes	Array of closing prices

Returns

Returns an array of integers: - 0: No Dragonfly Doji pattern detected - 100: Dragonfly Doji pattern detected (bullish reversal signal)

Note: This pattern only returns bullish signals. There is no bearish equivalent (see Gravestone Doji for bearish variant).

Pattern Recognition Rules

Structure Requirements

1. Body: Very small or nonexistent (open ≈ close)
2. Upper Shadow: None or very small
3. Lower Shadow: Long (at least 2-3× the body size)
4. Shape: Distinctive "T" or dragonfly shape
5. Context: Forms after downtrend or at support

Key Characteristics

• Open and close are at or very near the session high
• Long lower shadow shows strong rejection of lower prices
• Sellers pushed price down but buyers completely reversed the move
• No upper shadow indicates buyers maintained control through close
• The longer the lower shadow, the more bullish the signal

Visual Pattern

After downtrend:

   _      Open/Close at high (small or no body)
   |
   |
   |
   |
   |      Long lower shadow (rejection of lower prices)

Understanding the Pattern

What It Measures

The Dragonfly Doji measures: - Seller Exhaustion: Bears pushed down but couldn't hold - Buyer Strength: Bulls reversed entire session's decline - Price Rejection: Strong rejection of lower price levels - Potential Reversal: Shift in control from sellers to buyers

Pattern Psychology

1. Session Opens: Price opens in downtrend
2. Selling Pressure: Bears push price significantly lower
3. Buyer Entry: Bulls step in aggressively at lower levels
4. Complete Reversal: Buyers push price all the way back to open/high
5. Closing Strength: Session closes at high, showing buyer control

Pattern Characteristics

• Range: Returns 0 (not present) or 100 (bullish)
• Type: Bullish reversal pattern
• Lag: Real-time single-candle pattern
• Best Used: After downtrends at support levels

Interpretation

Pattern Signals

Bullish Dragonfly Doji (100) - Appears after downtrend or at support - Long lower shadow shows seller exhaustion - Close at high shows buyer strength - Indicates potential bottom formation - Strong reversal signal when confirmed

Reliability Factors

Factor	Low Reliability	Medium Reliability	High Reliability
Trend Context	Sideways	Downtrend	Strong downtrend
Lower Shadow	2× body	3× body	4×+ body
Volume	Low	Normal	High volume
Location	Mid-chart	Swing low	Major support
Body Size	Medium	Small	Perfect doji

Note: Array elements should be ordered from oldest to newest (chronological order)

Trading Signals

Buy Signals

Primary Signal: 1. Dragonfly Doji forms after downtrend 2. Long lower shadow (3×+ body length) 3. Open and close near session high 4. Preferably at support level

Confirmation Signal:

# Wait for bullish confirmation candle
if pattern[-2] == 100  # Dragonfly two bars ago
  if close[-1] > close[-2] && close[-1] > open[-1]
    puts "Dragonfly Doji CONFIRMED"
    puts "Enter LONG on bullish confirmation"
  end
end

Entry Criteria: - Enter on close of confirmation candle - Confirmation closes above dragonfly high - Stop below dragonfly low - Volume increases on confirmation

Divergence Analysis

With RSI:

# Bullish divergence + Dragonfly = very strong signal
if pattern.last == 100
  # Price making lower low but RSI higher low = bullish divergence
  if low.last < low[-10] && rsi.last > rsi[-10]
    puts "Bullish Divergence + Dragonfly Doji"
    puts "Very strong reversal signal"
  end
end

Best Practices

Optimal Use Cases

Best Conditions: - Forms after extended downtrend - At major support levels - With oversold RSI (<30) - High volume on the doji - Long lower shadow (3×+ body) - Perfect doji (open = close)

Time Frames: - Daily charts: Most reliable - 4-hour charts: Good reliability - Hourly charts: Moderate (needs confirmation) - Weekly charts: Very reliable but rare

Combining with Other Indicators

With RSI:

dragonfly = SQA::TAI.cdl_dragonflydoji(open, high, low, close)
rsi = SQA::TAI.rsi(close, period: 14)

if dragonfly.last == 100
  if rsi.last < 30
    puts "Dragonfly Doji + Oversold RSI"
    puts "High probability reversal setup"
  elsif rsi.last < 40
    puts "Dragonfly Doji + Low RSI"
    puts "Good reversal signal"
  end
end

With Support Levels:

dragonfly = SQA::TAI.cdl_dragonflydoji(open, high, low, close)

if dragonfly.last == 100
  # Find recent support
  support = close[-60..-1].min
  near_support = (close.last - support).abs < support * 0.02

  if near_support
    puts "Dragonfly Doji AT SUPPORT"
    puts "High probability reversal zone"
  end
end

With Moving Averages:

dragonfly = SQA::TAI.cdl_dragonflydoji(open, high, low, close)
sma_200 = SQA::TAI.sma(close, period: 200)

if dragonfly.last == 100
  near_200sma = (close.last - sma_200.last).abs < sma_200.last * 0.02

  if near_200sma
    puts "Dragonfly Doji at 200 SMA"
    puts "Major support level test"
  end
end

Common Pitfalls

1. Trading Without Downtrend
2. Pattern needs downtrend context
3. In uptrend, it's just a doji

4. Verify trend before trading

5. No Confirmation Wait

6. Pattern is setup, not entry
7. Wait for confirmation candle

8. Reduces false signals significantly

9. Ignoring Shadow Length

10. Longer shadow = stronger signal
11. Short shadow = weaker signal

12. Measure shadow-to-body ratio

13. Poor Risk Management

14. Must use stop below low
15. Calculate position size on risk
16. Don't over-leverage

Parameter Selection Guidelines

For Different Trading Styles:

Day Trading (1-hour to 4-hour): - Strict confirmation required - Use intraday support levels - Tighter stops needed - Quick profit taking

Swing Trading (Daily): - Standard approach works well - Daily confirmation ideal - 2-5 day holding typical - Target 2-4R moves

Position Trading (Weekly): - Very high reliability - Major trend reversals - Weekly confirmation - Hold weeks to months

Practical Examples

Example 1: Dragonfly Doji at Support

require 'sqa/tai'

open, high, low, close = load_ohlc_data('AAPL')

pattern = SQA::TAI.cdl_dragonflydoji(open, high, low, close)
sma_50 = SQA::TAI.sma(close, period: 50)

if pattern.last == 100
  # Verify downtrend
  in_downtrend = close[-2] < sma_50[-2] && close[-2] < close[-20]

  # Find support
  support = close[-60..-1].min
  near_support = (low.last - support).abs < support * 0.02

  # Calculate shadow length
  body = (close.last - open.last).abs
  lower_shadow = open.last - low.last
  shadow_ratio = body > 0 ? lower_shadow / body : 999

  if in_downtrend && near_support && shadow_ratio > 3
    puts "Strong Dragonfly Doji Setup!"
    puts "Current: #{close.last.round(2)}"
    puts "Support: #{support.round(2)}"
    puts "Shadow ratio: #{shadow_ratio.round(1)}:1"
    puts "Lower shadow: #{lower_shadow.round(2)}"
    puts "\nWait for bullish confirmation"
  end
end

Example 2: Dragonfly with RSI

open, high, low, close = load_ohlc_data('TSLA')

pattern = SQA::TAI.cdl_dragonflydoji(open, high, low, close)
rsi = SQA::TAI.rsi(close, period: 14)

if pattern.last == 100
  puts "Dragonfly Doji Pattern"
  puts "RSI: #{rsi.last.round(2)}"

  if rsi.last < 30
    puts "\nOVERSOLD + Dragonfly Doji"
    puts "Very strong reversal signal"
    puts "High probability long setup"
  elsif rsi.last < 40
    puts "\nLow RSI + Dragonfly Doji"
    puts "Good reversal signal"
  else
    puts "\nDragonfly but RSI not oversold"
    puts "Moderate probability"
  end

  # Shadow analysis
  body = (close.last - open.last).abs
  lower_shadow = [open.last, close.last].min - low.last

  puts "\nShadow Length: #{lower_shadow.round(2)}"
  puts "Body Size: #{body.round(2)}"

  if body < lower_shadow * 0.1
    puts "Excellent doji (tiny body)"
  end
end

Example 3: Dragonfly with Volume

open, high, low, close, volume = load_ohlc_volume_data('NVDA')

pattern = SQA::TAI.cdl_dragonflydoji(open, high, low, close)

if pattern.last == 100
  avg_volume = volume[-20..-1].sum / 20.0
  current_volume = volume.last

  puts "Dragonfly Doji Volume Analysis"
  puts "Current volume: #{current_volume.round(0)}"
  puts "Average volume: #{avg_volume.round(0)}"
  puts "Ratio: #{(current_volume / avg_volume).round(2)}×"

  if current_volume > avg_volume * 2
    puts "\nVERY HIGH VOLUME"
    puts "Strong buying pressure at lows"
    puts "Excellent reversal signal"
  elsif current_volume > avg_volume * 1.3
    puts "\nABOVE AVERAGE VOLUME"
    puts "Good buying interest"
  else
    puts "\nLOW VOLUME"
    puts "Weaker signal - need confirmation"
  end
end

Example 4: Complete Trading System

open, high, low, close, volume = load_ohlc_volume_data('MSFT')

pattern = SQA::TAI.cdl_dragonflydoji(open, high, low, close)
rsi = SQA::TAI.rsi(close, period: 14)
sma_50 = SQA::TAI.sma(close, period: 50)
sma_200 = SQA::TAI.sma(close, period: 200)

if pattern[-2] == 100  # Pattern formed two bars ago
  # Check for confirmation
  confirmed = close[-1] > close[-2] && close[-1] > open[-1]

  if confirmed
    puts "Dragonfly Doji CONFIRMED!"
    puts "=" * 50

    # Downtrend verification
    in_downtrend = close[-3] < sma_50[-3]

    # RSI check
    rsi_val = rsi[-2]
    oversold = rsi_val < 40

    # Volume check
    avg_vol = volume[-20..-2].sum / 19.0
    high_volume = volume[-2] > avg_vol * 1.5

    # Support check
    support = close[-60..-1].min
    at_support = (low[-2] - support).abs < support * 0.03

    # Shadow quality
    body = (close[-2] - open[-2]).abs
    lower_shadow = [open[-2], close[-2]].min - low[-2]
    strong_shadow = lower_shadow > body * 3

    # Doji quality
    perfect_doji = body < (high[-2] - low[-2]) * 0.1

    # Score the setup
    score = 0
    score += 1 if in_downtrend
    score += 1 if oversold
    score += 1 if high_volume
    score += 1 if at_support
    score += 1 if strong_shadow
    score += 1 if perfect_doji

    puts "Setup Analysis:"
    puts "Downtrend: #{in_downtrend ? '✓' : '✗'}"
    puts "Oversold RSI: #{oversold ? '✓' : '✗'} (#{rsi_val.round(2)})"
    puts "High Volume: #{high_volume ? '✓' : '✗'}"
    puts "At Support: #{at_support ? '✓' : '✗'}"
    puts "Strong Shadow: #{strong_shadow ? '✓' : '✗'} (#{(lower_shadow/body).round(1)}×)"
    puts "Perfect Doji: #{perfect_doji ? '✓' : '✗'}"
    puts "\nSetup Score: #{score}/6"

    if score >= 4
      # Calculate trade parameters
      entry = close[-1]
      stop = low[-2] * 0.995  # 0.5% below dragonfly low
      risk = entry - stop
      target = entry + (risk * 3)

      puts "\n*** HIGH PROBABILITY LONG SETUP ***"
      puts "Entry: #{entry.round(2)}"
      puts "Stop Loss: #{stop.round(2)}"
      puts "Target: #{target.round(2)}"
      puts "Risk: $#{risk.round(2)} (#{(risk/entry*100).round(2)}%)"
      puts "Reward: $#{(target-entry).round(2)}"
      puts "R:R Ratio: 1:3"

      # Position sizing
      account_size = 100000
      risk_percent = 0.01
      risk_amount = account_size * risk_percent
      shares = (risk_amount / risk).floor

      puts "\nPosition Sizing:"
      puts "Account: $#{account_size}"
      puts "Risk per trade: 1% = $#{risk_amount.round(2)}"
      puts "Shares: #{shares}"
      puts "Total position: $#{(shares * entry).round(2)}"

    elsif score >= 3
      puts "\nDECENT SETUP - Consider reduced size"
    else
      puts "\nLOW PROBABILITY - Skip this trade"
    end
  else
    puts "Dragonfly Doji waiting for confirmation..."
  end
end

Trading Strategies

Conservative Entry (Recommended)

# Wait for confirmation candle
if pattern[-2] == 100
  if close[-1] > high[-2]  # Broke above dragonfly high
    entry = close.last
    stop = low[-2] * 0.995
    puts "Enter LONG at #{entry.round(2)}"
    puts "Stop at #{stop.round(2)}"
  end
end

Aggressive Entry

# Enter on dragonfly close (higher risk)
if pattern.last == 100
  entry = close.last
  stop = low.last * 0.995
  puts "Enter LONG at #{entry.round(2)}"
  puts "Stop at #{stop.round(2)}"
  puts "WARNING: No confirmation"
end

Stop Loss Placement

if pattern.last == 100
  # Stop below dragonfly low
  stop = low.last * 0.995  # 0.5% buffer
  puts "Stop loss: #{stop.round(2)}"
  puts "Rationale: Below rejection low"

  # Calculate risk
  entry = close.last
  risk = entry - stop
  risk_percent = (risk / entry) * 100
  puts "Risk: #{risk_percent.round(2)}%"
end

Profit Targets

if pattern.last == 100
  entry = close.last
  stop = low.last * 0.995
  risk = entry - stop

  # Multiple targets
  target_1 = entry + (risk * 1.5)
  target_2 = entry + (risk * 2.5)
  target_3 = entry + (risk * 4.0)

  puts "Profit Targets:"
  puts "T1 (1.5R): #{target_1.round(2)} - 50% position"
  puts "T2 (2.5R): #{target_2.round(2)} - 30% position"
  puts "T3 (4R): #{target_3.round(2)} - 20% position"

  # Or target resistance
  resistance = close[-60..-1].max
  puts "Resistance target: #{resistance.round(2)}"
end

Pattern Statistics

Frequency

• Occurrence: Rare (< 2% of candles)
• Best Timeframes: Daily, Weekly
• Markets: All markets (stocks, forex, crypto, commodities)

Success Rate

• With confirmation: 65-75% success rate
• Without confirmation: 45-55% success rate
• At support: 75-85% success rate
• With oversold RSI: 70-80% success rate

Average Move

• Typical bounce: 5-15% from low
• Major reversals: 20-50% possible
• Time to target: 5-20 candles (varies by timeframe)

Pattern Quality Checklist

Strong Dragonfly Doji (Higher Probability)

• Forms after clear downtrend (20+ candles)
• Long lower shadow (3×+ body length)
• Perfect doji (open ≈ close)
• No or tiny upper shadow
• High volume on pattern day
• At major support level
• RSI < 30 (oversold)
• Bullish confirmation candle

Weak Dragonfly Doji (Lower Probability)

• No clear downtrend
• Short lower shadow (< 2× body)
• Large body
• Upper shadow present
• Low volume
• Mid-range location
• Neutral RSI
• No confirmation

Common Mistakes

1. Trading Without Downtrend Context
2. Pattern requires downtrend
3. In uptrend, just a doji

4. Verify trend first

5. No Confirmation

6. Most critical mistake
7. Significantly reduces success rate

8. Always wait for confirmation

9. Ignoring Shadow Length

10. Shadow length indicates strength
11. Short shadow = weak signal

12. Need 3×+ body for quality

13. Poor Stop Placement

14. Stop must be below low
15. Pattern invalidated if low breaks

16. Use proper buffer (0.5-1%)

17. Wrong Body Assessment

18. Must be very small body
19. Open and close must be near equal
20. Large body = not dragonfly

Related Patterns

Similar Bullish Patterns

• Hammer - Similar but body not at top
• Inverted Hammer - Long upper shadow instead
• Morning Star - Three-candle reversal

Doji Family

• Doji Star - Doji that gaps from trend
• Gravestone Doji - Bearish opposite
• Long-Legged Doji - Long shadows both ways

Opposite Pattern

• Gravestone Doji - Bearish reversal with long upper shadow

Key Takeaways

1. T-Shape is Key: Long lower shadow + small body at top = dragonfly
2. Downtrend Required: Only valid as reversal in downtrend
3. Confirmation Critical: Wait for bullish candle to confirm
4. Shadow Length Matters: Longer shadow = stronger signal
5. Support Amplifies: Pattern strongest at support levels
6. Volume Confirms: High volume adds conviction
7. Stop Below Low: Pattern fails if low breaks

See Also

• Gravestone Doji - Bearish opposite
• Hammer Pattern - Similar bullish reversal
• Doji Star - Two-candle doji reversal
• Morning Star - Three-candle reversal
• Pattern Recognition Overview
• Back to Indicators