Trading based on a dragonfly doji

You can make smart trades based on the dragonfly dojis you see in your charts. Two charts can help:

^ One in which a dragonfly doji indicates a nice buying opportunity ^ One in which a dragonfly doji fails pretty badly

First the good one. Much like the long white candle I discuss earlier in this chapter, the dragonfly doji helps you establish a solid support level to buy with confidence. In Figure 5-12, notice how the bottom end of the dragonfly doji wick works as a support level, which is held as the security remains bullish for several days. The dragonfly doji appears after some range trading, and it's followed by a quick breakout of prices that reach new highs. Although the first day following the dragonfly doji shows an opening price lower than the previous close, the dragonfly's low price isn't violated, and the signal remains valid. Sticking with this valid signal leads to some nice profits!

Figure 5-12:

A dragonfly doji that pays off.

Figure 5-12:

A dragonfly doji that pays off.

Now for a dragonfly doji that doesn't work out too well. The dragonfly that appears in Figure 5-13 looks promising, but it's followed the next day with a low that's lower than the bottom of the dragonfly's wick. And as you can see, the next moves are even lower.

The low of the dragonfly doji is a significant support level, but when that level is violated, it negates the dragonfly's buy signal. When a level is violated, get out as soon as possible.

Was this article helpful?

0 0

Post a comment