■ Definition: The gravestone doji is formed when the open, close, and low are at the same price. It has a long upper shadow.
■ General interpretation: Like all doji, the gravestone doji can be interpreted both as a reversal or a continuation pattern. The important criterion is to identify where the doji is found. If the doji is found after a rally or in a high price area, it is generally viewed as a potential bearish reversal pattern. If it is found after a downtrend or at a low price area, it has potential bullish reversal implications. But if found in a sideways market, it is viewed as neutral.
Gravestone Doji at the Top
Rules
1. Sell if confirmation candle 3 closes below lowest of candles 1 and 2.
2. In case of a resumption of uptrend, place buy‐stop above the highest of candles 1, 2, and 3.
Specific interpretation: The gravestone doji is bearish if seen after a strong uptrend or at a high price area. It is a bearish candle because of its long upper shadow and a close at its low. A low close implies that the bears dominate prices even though they were traded higher all day. If the open and close are near each other but not at the same price, it is called a Shooting Star, also a bearish candle.
Proper action: Possible major reversal candle but wait for a confirmation candle before selling. A close below the lowest low of the gravestone doji (candle 2) and the candle before it (candle 1) is your sell confirmation. The gravestone doji candle is, however, a rare pattern in Malaysian stocks and futures as well as in most financial instruments.
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