Dragonfly Doji Candlestick Definition and Tactics

Dragonfly Doji Candlestick Definition and Tactics

What is a Dragonfly Doji?

A Dragonfly Doji is a type of candlestick pattern that can signal a potential reversal in price to the downside or upside, depending on past price action. It’s formed when the asset’s high, open, and close prices are the same. The long lower shadow suggests that there was aggressive selling during the period of the candle, but since the price closed near the open it shows that buyers were able to absorb the selling and push the price back up.

Following a downtrend, the dragonfly candlestick may signal a price rise is forthcoming. Following an uptrend, it shows more selling is entering the market and a price decline could follow. In both cases, the candle following the dragonfly doji needs to confirm the direction.

Key Takeaways A dragonfly doji can occur after a price rise or a price decline.

The open, high, and close prices match each other, and the low of the period is significantly lower than the former three. This creates a “T” shape.

The appearance of a dragonfly doji after a price advance warns of a potential price decline. A move lower on the next candle provides confirmation.

A dragonfly doji after a price decline warns the price may rise. If the next candle rises that provides confirmation.

Candlestick traders typically wait for the confirmation candle before acting on the dragonfly doji.

What Does the Dragonfly Doji Tell You?

The dragonfly doji pattern doesn’t occur frequently, but when it does it is a warning sign that the trend may change direction. Following a price advance, the dragonfly’s long lower shadow shows that sellers were able to take control for at least part of the period. While the price ended up closing unchanged, the increase in selling pressure during the period is a warning sign.

The candle following a potentially bearish dragonfly needs to confirm the reversal. The candle following must drop and close below the close of the dragonfly candle. If the price rises on the confirmation candle, the reversal signal is invalidated as the price could continue rising.

Following a price decline, the dragonfly doji shows that the sellers were present early in the period, but by the end of the session the buyers had pushed the price back to the open. This indicates increased buying pressure during a downtrend and could signal a price move higher.

The signal is confirmed if the candle following the dragonfly rises, closing above the close of the dragonfly. The stronger the rally on the day following the bullish dragonfly, the more reliable the reversal is.

Traders typically enter trades during or shortly after the confirmation candle completes. If entering long on a bullish reversal, a stop loss can be placed below the low of the dragonfly. If enter short after a bearish reversal, a stop loss can be placed above the high of the dragonfly.

The dragonfly doji works best when used in conjunction with other technical indicators, especially since the candlestick pattern can be a sign of indecision as well as an outright reversal pattern. A dragonfly doji with high volume is generally more reliable than a relatively low volume one. Ideally, the confirmation candle also has a strong price move and strong volume.

In addition, the dragonfly doji might appear in the context of a larger chart pattern, such as the end of a head and shoulders pattern. It’s important to look at the whole picture rather than relying on any single candlestick.

Example of How to Use the Dragonfly Doji

Image by Sabrina Jiang © Investopedia 2020

Dragonfly dojis are very rare, because it is uncommon for the open, high, and close all to be exactly the same. There are usually slight discrepancies between these three prices.

This example shows a dragonfly doji that occurred during a sideways correction within a longer-term uptrend. The dragonfly doji moves below the recent lows but then is quickly swept higher by the buyers.

Following the dragonfly, the price proceeds higher on the following candle, confirming the price is moving back to the upside. Traders would buy during or shortly after the confirmation candle. A stop loss can be placed below the low of the dragonfly.

The example shows the flexibility that candlesticks provide. The price wasn’t dropping aggressively coming into the dragonfly, but the price still dropped and then was pushed back higher, confirming the price was likely to continue higher. Looking at the overall context, the dragonfly pattern and the confirmation candle signaled that the short-term correction was over and the uptrend was resuming.

The Difference Between the Dragonfly Doji and the Gravestone Doji

A gravestone doji occurs when the low, open, and close prices are the same, and the candle has a long upper shadow. The gravestone looks like an upsidedown “T.” The implications for the gravestone are the same as the dragonfly. Both indicate possible trend reversals but must be confirmed by the candle that follows.

Limitations of Using the Dragonfly Doji

The dragonfly doji is not a common occurrence, therefore, it is not a reliable tool for spotting most price reversals. When it does occur, it isn’t always reliable either. There is no assurance the price will continue in the expected direction following the confirmation candle.

The size of the dragonfly coupled with the size of the confirmation candle can sometimes mean the entry point for a trade is a long way from the stop loss location. This means traders will need to find another location for the stop loss, or they may need to forgo the trade since too large of a stop loss may not justify the potential reward of the trade.

Estimating the potential reward of a dragonfly trade can also be difficult since candlestick patterns don’t typically provide price targets. Other techniques, such as other candlestick patterns, indicators, or strategies are required in order to exit the trade when and if profitable.

LNG tender default turns into boon for Pakistan

ISLAMABAD: The liquefied natural gas (LNG) supply defaults last week by two foreign state-owned companies — Enoc and SOCAR — came as a blessing in disguise to Pakistan as two urgent replacement tenders for February fetched about 16-18 per cent cheaper rates as international market plunged.

The urgent tender floated by state-run Pakistan LNG Limited (PLL) for second half of next month attracted the lowest bid of $9.58 per million British thermal unit (MMBTU) or 19.5pc of Brent for Feb 21-22 window from Vitol Trading and $8 per MMBTU or 16.3pc of Brent from Qatar LNG for Feb 25-26 window.

In comparison, the lowest bids from defaulting parties for almost same period were $11.48 per MMBTU or 23.41pc of Brent for Feb 15-16 by SOCAR of Azerbaijan and $10.22 per MMBTU or 20.09pc of Brent by Enoc of UAE for Feb 23-24.

Informed sources in the PLL said that SOCAR not only defaulted on its February bid but also tried to blackmail the PLL into committing about 11 cargos between February and September at higher than market rates under government-to-government (G2G) arrangement without bidding. Documents seen by Dawn show the PLL and SOCAR remained engaged in talks until the last moment but the requirement for cabinet approval for G2G deal ended the process.

Replacement orders fetch cheaper rates

Fortunately, the prices had already gone down in the market by the time the PLL floated urgent tenders.

Two major factors contributed to the LNG market crash. This included an intervention by Japan’s energy regulator to exit the spot market in an attempt to ensure that power prices do not go up further amid warmer weather conditions. Likewise, South Koreans also decided against securing additional gas for February.

As a consequence, LNG traders hoarding the product had nowhere to offload their cargoes, thus a fall in spot market. At present, European and Far Eastern importers are paying about $7.5 and $8.2 per MMBTU, respectively. Market analysts now expect the LNG prices going further down to about $5-6 per MMBTU or 10-12pc of Brent in April onwards period until October next year.

The petroleum division that seldom announces PLL bid results immediately claimed credit for the lower prices. In a statement, it said the PLL “has arranged one more LNG cargo at a lower price for the month of February 2021 through an urgent tender. The price is approximately 22pc lower than the price of the bidder that withdrew its bid earlier for same cargo”.

The petroleum division said this also put to rest the argument that “ordering very early necessarily guarantees a better price”. It said the time period between the bid submission date and delivery date of cargo for the urgent tender was 35 days as compared with 49 days for the earlier tender in the same delivery window.

The episode also established the fact that traders do not own cargoes, do not care about reputational damage and hence chose to default on Pakistani tender as they were making profit of $15-20 million per cargo against a paltry loss of $300,000 security bond. In the process, however, Pakistan is estimated to have got a saving of $7m-$10m per cargo when compared to two lost cargoes.

This means the government should move away from traders and encourage producers to participate in tenders. It is also important to plan and procure in advance in a bullish market while buyers have a better choice in bearish market. This is also supported by Indian advance bidding that resulted in $5-6 per MMBTU now being delivered.

Interestingly, the PLL has received bids for March 2-23 delivery window at the rate between $17 and $23.75 per cargo. All the spot cargos contain about 140,000 cubic meters of LNG or 3.2 million MMBTU.

PLL CEO Masood Nabi could not be contacted for comment despite efforts, but his close aides said the procurement rules were hampering competitive rates to Pakistan because 10-day period between bid opening and contract award provided bidders to move to greener pastures.

PLL sources said the SOCAR initially offered six cargoes for current year under G2G arrangements between Pakistan and Azerbaijan and when it emerged as lowest evaluated bidder for February tender, the company increased its offer to 11 cargoes at a rate almost a dollar higher than Japan-Korea market. This was subject to the condition that the PLL should not award the February cargo of 23.43pc of Brent SOCAR had won in bidding. The talks fell apart after consultant Wood Mackenzie voted against the offer for being uncompetitive in South Asia.

Published in Dawn, January 23rd, 2021

Hospital diversion: what it means and why it happens

At the emergency department of one of the busiest hospitals in the city, Dr Khan (name changed) sprinted back and forth as she managed the flow of Covid-19 patients, on a late November evening. She and her team of nurses, residents and consulting physicians had predicted the second wave of the pandemic a long time back and knew that their Department of 24/7 Emergency and Acute Care Services would once again go on diversion for adult patients with Covid-19.

A temporary hospital diversion means that the facility has exhausted its resources, such as beds, ventilators, nurses, etc, and is functioning at or beyond its capacity, such that its Emergency Room (ER) is not able to provide care to new patients without compromising the care of existing patients in the ER. In order to continue to provide high quality care to patients already at the facility, new arrivals are requested to seek care from another hospital, until space becomes available.

There were times during the pandemic’s first wave that several hospitals functioned at the maximum capacity, sometimes beyond, for Covid-19 patients. The number of patients coming in with the need for ventilator support, especially, was becoming overwhelming for the health systems.

Dr Khan recalls the distress they felt during the peak of the first wave on receiving Covid-19 patients dead-on-arrival, to the ER. She is not the only medical professional to see the horrors of this pandemic. There are many ER consultants and triage nurses like her, across Pakistan, who saw critically ill Covid-19 patients pass away, before receiving the urgent care they needed. During the second wave, the hospitals are starting to function at or beyond their capacity for Covid-19 patients, once again.

In the Emergency Department of most hospitals, there are separate triage areas dedicated for Covid-19 patients and patients with other illnesses. Let us not forget that during the pandemic, people with non-Covid chronic and acute conditions did not stop requiring emergency and other medical care. People were still seeking care for diabetes, they were still having heart attacks, and getting involved in accidents and requiring trauma surgeries. Therefore, hospitals had to balance all their resources, including ER beds, for all types of diseases, conditions and patients, including Covid-19.

Before hitting the peak during the first wave, healthcare workers, and provincial and federal governments kept reminding the citizens that the hospitals were starting to fill up, and that the only way to flatten the curve is to wear masks, avoid crowded places, keep washing and/or sanitising hands and maintaining six feet of physical distance. As the number of new cases kept increasing and the volume of sicker patients spiking, most hospitals filled to capacity and their Emergency Departments had no choice left but to declare a diversion status for Covid-19 patients.

The second wave is slightly different than the first and the hospitals are starting to fill up to capacity faster than before. This is because winter is always a peak season for critically ill and sick patients rushing to the Emergency and this time around, Covid-19 has exacerbated that further. Generally, high volumes of cardiac arrests, asthma, influenza, and pneumonia patients, amongst others, are observed. The pandemic is only adding to the challenge, yet again.

During times like these, Dr Khan and her staff can be observed in constant communication with hospital-wide teams, including the ICU and bed management teams, to ensure smooth and efficient flow of patients.

“The constantly evolving trend of patient flow demands planning and shuffling of allocated beds to manage the capacity and diversion status. This is not an easy task, as there are patients with other illnesses too, who require urgent intensive care and ventilator support,” says Dr Khan on managing the allocation of resources.

During the first wave, lessons were learnt, and now during the second wave, hospitals are better equipped with knowledge. Our healthcare systems can only bear so much pressure, resulting in not only filled-up beds, but also overworked medical and support staff. It is important to note that this is not only the case in Pakistan, but also holds true for high-income countries of North America and Europe.

The health and well-being of the community at large starts from the basic level of individual responsibility. While we may be getting tired of hearing the prevention mantra, we must not give up on the necessary precautions of keeping safe from Covid-19, that is, wearing masks, washing and/or sanitising hands, maintaining six feet of physical distance, and avoiding public gatherings and crowds. The battle against this infection is not over yet, and chances are, it will not be for the foreseeable future. Until the vaccine becomes available in Pakistan and a large proportion of the population is inoculated, our best bet is to continue protecting ourselves and our loved ones, so that we stay out of the hospital.

Published in The Express Tribune, January 12th, 2021.

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