What Does a Gravestone Doji Tell You?
A gravestone doji pattern implies that a bearish reversal is coming. While the open, low, and closing prices don't have to be equal for the pattern to be valid, there should be a relatively small tail, else the pattern could be classified as an inverted hammer, shooting star, or a spinning top. The market narrative is that the bulls attempt to push to new highs over the session, but the bears push the price action to near the open by the session close. So the long upper shadow represents the bulls losing momentum.
While the gravestone doji can be found at the end of a downtrend, it's more common to be found at the end of an uptrend. Although the gravestone doji is popular, it suffers from the same reliability issues as many visual patterns. Generally traders will not act on a gravestone doji unless the next candle provides confirmation of a the reversal.
Trading the Gravestone Doji
Traders will often exit long positions or initiate short positions after identifying a gravestone doji pattern, although it's important to use this candlestick pattern in conjunction with other forms of technical analysis as a confirmation. Often times, traders will also look at the volume associated with the session, as well as the previous sessions' activity, as potential indicators of the reliability of the pattern.