The gravestone doji candlestick pattern is a three candle pattern. It is created when a big bullish candle is followed by a candle with a long wick that has opening and closing prices in the time frame close to the same and price ends near the low of the time frame. The last candle in the pattern is a large bearish reversal lower. These three candles show a rally, then a failed move higher, and finally a reversal to lower prices. The long upper wick on the middle candle shows that sellers came in all day to reject further upward movement to higher highs in the trend and can be a signal that the uptrend is ending and reversing and going back down or at the least going sideways.
A gravestone doji candlestick pattern can be a signal to take profits on a long position as it shows the uptrend could be ending or enter a new short position betting that the odds are that prices fall lower. This is a bearish reversal signal during a bullish uptrend and should happen near the current highs on a chart.
The inverse of a bearish gravestone doji that happens near the top of a chart is a bullish dragonfly doji that happens near the lows on a chart.
The name ‘gravestone’ comes from the image of this pattern marking the death of a bullish uptrend and the beginning of a new bearish downtrend.