How to trade Gravestone Doji
Trading the gravestone doji chart pattern is super simple.
Once you have identified a valid gravestone doji candlestick, it will signal that a change in trend could occur.
To trade this, you must approach it like any other candlestick formation which is to only trade the pattern around areas of confluence such as:
- Reacting from the Resistance Level
- Reacting from the resistance of a moving average
- Reacting from the resistance of a lower Bollinger band
- Reacting from the resistance of a Fibonacci level
Plus many more…
Trading the gravestone doji candlestick pattern alone can lead to lower quality trades, whereas combining the indicator with a resistance level will increase its validity as a reversal signal.
The gravestone doji by itself doesn’t always justify a selling signal, rather it indicates that there is a reversal potentially coming.
Let’s look at an example of a gravestone doji with a resistance level.
The gravestone doji can emerge anywhere during a trend which is due to the buyers and sellers indecisiveness of where they want to take the market.
This opens up to two types of selling signals, a weak signal, and a strong signal based on where the patterns appear.
Gravestone Doji In an Uptrend
If a gravestone doji has appeared in an uptrend, this can be considered as a strong signal due to the spike of participants moving from buying to selling the market.
A gravestone doji in an uptrend that is validated by the market is strong because the sellers were able to get the market lower from the session high pulling it down to its open price when the previous session have been bullish.
This shows the momentum may have switched.
Gravestone Doji in a Downtrend
When a gravestone doji in a downtrend appears it is believed to be a weak signal or a continuation pattern as the sellers still managed to be active.
However, the sellers were unable to create a new session low, this is why it can be seen as a weak signal.
With that said, as a continuation pattern, it shows that sellers are still participating and may, develop another entry level to add more capital to their trade or use it as an entry level to enter the current trend.
As the gravestone doji had formed in a downtrend, that means the sellers are in control, therefore for the buyers to enter and try to close the price lower is considered a weak signal too.
Tip #3: The colour of the candlestick is irrelevant, it can either be red or green. However, it is a stronger signal if the gravestone doji is red and at the top of the trend.
Tip #4: The Gravestone Doji can have a low wick below the body, but the low must be tiny, no more than 1-3 pips lower than the open price. The crucial factor to identify the chart pattern is that the open and close are equal.
To trade the Gravestone Doji is straight forward:
Step 1: wait for validation – we must wait for the session to finish/close before we can confirm it’s a valid signal.
Step 2: place an order on the low/close of the gravestone doji candlestick or open a market order once the candlestick has closed.
Step 3: Place stop loss at the high of the candlestick. If the market pulls back towards the doji’s high and trades higher, then this rejects the bearish signal and you would take a small loss.
Step 4: Take profit is always open to each trader, so this depends upon your risk management.
Normally, you can exit a trade at the next support level.
As simple as that.