How to Profit from the Gravestone Doji Candlestick Pattern

Traders are always on the lookout for signals that suggest a potential trend reversal. The Gravestone Doji candlestick pattern is one such signal that hints at a potential market reversal, specifically a bearish reversal pattern indicating a shift from a bullish trend to a bearish trend.

It forms when buyers push prices higher, but sellers regain control and drive prices back down to the opening level. This rejection of higher prices can indicate that the market is losing its buying momentum and that bearish sentiment is growing.

This guide explains how the Gravestone Doji pattern works, what it tells traders about market psychology, and how to trade it effectively using technical analysis tools.

The Gravestone Doji is a single candlestick pattern that signals a possible bearish reversal. It has a long upper wick, a small or nonexistent body, and a closing price equal to or near the opening price.

This Japanese candlestick pattern forms when buyers drive the price up during the trading period, but sellers regain control and push it back down to the opening level. The longer the upper wick, the stronger the indication that buyers failed to maintain control.

Key Characteristics:

• Appears in both uptrends and downtrends.
• No actual body (open and close prices are nearly the same).
• Long upper wick, showing that buyers were overpowered by sellers.
• Little to no lower wick, reinforcing bearish pressure.

Traders interpret this pattern as a bearish signal, but they typically wait for confirmation candles before acting.

The Gravestone Doji candlestick pattern is illustrated below.

• Forms in both upward trends and downward trends.
• Open and close are nearly the same, creating a narrow candle body.
• Long upper wick, indicating strong selling pressure.
• Little to no lower wick, showing that buyers failed to hold gains.
• Traders wait for additional confirmation tools, such as bearish indicators or a break below key resistance levels, to validate the signal.

The Gravestone Doji represents extreme indecision between buyers and sellers. Buyers push the price higher, but sellers overwhelm them and force prices back down. This shift in market sentiment suggests that bullish sentiment is weakening and that market participants may be preparing for a reversal in price direction.

If this pattern forms after a sustained uptrend, it suggests that sellers are stepping in, potentially marking the end of the rally. If it forms in a bearish trend, it can signal continuation rather than reversal, as it shows that bearish sentiment remains dominant.

Market Conditions

The Gravestone Doji is most effective when it appears after an extended uptrend, as it signals that bullish momentum is fading. When it forms after a prolonged rally, traders see it as a sign that the market may be losing steam. However, in volatile markets, this pattern may indicate market indecision rather than a clear bearish trend reversal.

Volatility Considerations

In high volatility markets, the Gravestone Doji may produce misleading signals, as price movements can create deceptive wicks. Traders often look for additional confirmation tools, such as a break below key levels or an increase in trading volume. In low volatility environments, the pattern may carry more weight, as price action tends to be more stable and controlled.

• Stop-loss placement: Above the high of the Gravestone Doji.
• Entry strategy: Traders often wait for bearish confirmation (next candle closing lower) before entering a sell position.
• Profit target: Use support levels or a risk-reward ratio (e.g., 2:1) to set a logical exit.

• No follow-through selling: If the next candle is bullish, the reversal signal weakens.
• Break above the high of the pattern: A new high invalidates the bearish setup.
• Strong uptrend continuation: If broader market trends remain bullish, the pattern may fail.

To trade the Gravestone Doji in a systematic trading approach:

1. Identify an uptrend before the pattern forms.
2. Detect a Gravestone Doji with a long upper wick and small body.
3. Require confirmation: Enter short only if the next candle closes lower.
4. Set stop-loss above the high of the Gravestone Doji.
5. Backtest before using real capital.

Below is a simple AFL script to detect the Gravestone Doji in Amibroker:

// Gravestone Doji AFL Code for Amibroker

_SECTION_BEGIN(“Gravestone Doji”);

BodySize = Abs(Open – Close);

UpperWick = High – Close;

LowerWick = Open – Low;

GravestoneDoji = 

    (BodySize < 0.1 * (High – Low)) AND 

    (UpperWick > 2 * BodySize) AND 

    (LowerWick < 0.1 * UpperWick);

PlotShapes(IIf(GravestoneDoji, shapeStar, shapeNone), colorRed, 0, High);

_SECTION_END();

This script finds Gravestone Doji patterns and marks them with a red star

The Gravestone Doji candlestick can be an early sign of a bearish trend reversal, but it must be confirmed by subsequent price action. It appears after an uptrend and signals that sellers are gaining strength, but traders should always test it in different markets before using it in live trading.

Using proper risk management techniques and waiting for confirmation can help avoid false signals. If you want to incorporate this pattern into your trading strategies, test it in different time frames, such as the 5-minute chart, weekly chart, or monthly chart before trading it live.

Links to articles about other Candlestick Patterns

1. Doji
2. Hammer
3. Inverted Hammer
4. Bullish Engulfing
5. Bearish Engulfing
6. Morning Star
7. Evening Star
8. Shooting Star
9. Hanging Man
10. Piercing Pattern
11. Dark Cloud Cover
12. Three White Soldiers
13. Three Black Crows
14. Dragonfly Doji
15. Gravestone Doji
16. Spinning Top
17. Marubozu
18. Tweezer Top
19. Tweezer Bottom
20. Bullish Harami 
21. Bearish Harami
22. Rising Three Methods
23. Falling Three Methods
24. Bullish Abandoned Baby 
25. Bearish Abandoned Baby 
26. Bullish Kicker 
27. Bearish Kicker
28. Three Inside Up
29. Three Inside Down
30. Upside Gap Two Crows
31. Mat Hold
32. Upside Tasuki Gap
33. Downside Tasuki Gap