The gravestone doji (see Exhibit 8.3) is another distinctive doji. It develops when the opening and closing prices are at the low of the day. While it can sometimes be found at market bottoms, its forte is in calling tops. The shape of the gravestone doji makes its name appropriate. As we have discussed, many of the Japanese technical terms are based on military analogies, and in this context, the gravestone doji also represents the graves of those bulls or bears who have died defending their territory.
The reason for the bearish implications of the gravestone doji after a rally can be explained simply. The market opens on the low of the session. It then rallies (preferably to a new high for the move). Then trouble occurs for the longs as prices plummet to the day’s lows. The longer the upper shadow and the higher the price level, the more bearish the
implications of the gravestone doji.
Exhibit 8.15 shows that April 11 and 12 are doji days. The second doji is the one of most interest. It is a gravestone doji. In this case, it marks the end of the battle for the bulls as the bears take over when the uptrend support line is broken. Exhibit 8.16 illustrates that the gravestone doji on October 8 (the very minor lower shadow does not void this as a gravestone) was especially negative for this stock. On that day, a new high was touched. It was the bulls’ chance to propel prices, but they failed. By the close, prices had pulled back to near the daily low. There was trouble at this $41 level before. Beginning on September 29, three candlestick lines developed into a stalled pattern. The gravestone doji confirmed the heavy supply at $41.
Some of you may have noticed that a gravestone doji looks like a shooting star. The gravestone doji, at tops, is a specific version of a shooting star. The shooting star has a small real body, but the gravestone doji-being a doji-has no real body. The gravestone doji is more bearish than a shooting star.