Recall from our last post – A Doji Candlestick, while informative in structure, is of little significance without context. While this is true, there are a few types of doji candlestick that even without context, pose as great price forecast indicators. One such candlestick is the Bearish Gravestone Doji.
Gravestone Doji – A Bearish Candlestick
The Gravestone Doji is a bearish doji candlestick and, within the right candlestick patterns, is often viewed as a reversal candle. This type of doji is spotted as an upside "T" candlestick on a chart. The price breakdown of the gravestone doji suggests a complete sell-off of a once Green candlestick (Refer to the "High" in Image). Essentially wiping off any price gain the candlestick may have had. (refer to image)
The Gravestone Doji suggests that the bears took the bulls down at the very last moment. Despite having the initial pump (refer to high), the bulls couldn't hold price past the candlestick Open. The gravestone doji is indicative of a massive bear victory.
A Gravestone Doji In Perspective
To put it into perspective, here’s a quick dissection of the Gravestone Doji. If you refer to Image 1, you’ll notice the candles opened at $1. The bulls swiftly pushed it up to $5. A push to the upside, without as much as a tick to the downside, is quite a feat. The initial bullish momentum clearly dwarfed the bear effort.
However, as the candle played out (refer to image 2), bears started to sell into the candlestick. The selling pressure got to a point where the price was back to $1 - back to the opening price. The candle got sold into completely until the candle closed.
Note how this candlestick Opened and Closed at the same price, despite the magnitude of the initial bullish effort. Such price action usually renders a Gravestone Doji.
Trading The Gravestone Doji
A gravestone doji could be found under different market contexts. Such as during bull rallies, market consolidations, as well in market dumps. Regardless of context, the Gravestone Doji remains a bearish candlestick.
The Gravestone Doji is analyzed as such when found under the following context:
- Bull Rally - It takes conviction from the bulls to sustain a rally. However, a gravestone doji in a bull rally suggests the bears won out. Hence, conviction from the bulls are wearing off. The doji is viewed as a potential reversal candle in this context.
- Bear Dump - Severe price dumps tend to cause panic selling. Wherein, retailers are looking for the next best opportunity to sell their bags. Hence, when price bounces even slightly, traders sell into it. This price action is likely to render a gravestone doji, and is a sign of continuation.
- Market Consolidation - This isn’t always common. However when it occurs, it implies strong bearish market sentiment. The gravestone doji is viewed a sign of bearish sentiment and dominance.