Definition of a Morning Doji Star Pattern
A Morning Doji Star is a stock chart candlestick pattern (what are candlestick charts?) of three candles at the end of a negative downturn that is considered to signal a reversal into a positive/bullish trend. It’s a special, rarer flavor of the Morning Star pattern, where the 2nd candle is a neutral doji candle with a flat body. It’s the mirror image of the Evening Doji Star pattern.
Basic Candlestick Anatomy
A candlestick is a chart depicting a single day’s trading of a single stock on a single market. It always has a thick portion (the “body” or “real body”) that represents the travel between the stock’s price at market open and market close. If the body is white or green, that means the travel was positive – the bottom of the body is the opening price, and the top of the body is the higher closing price. If the body is black or red, that means the travel was negative - the top of the body is the opening price, and the bottom of the body is the lower closing price.
Above and/or below the body, thin lines can extend. These are known as “shadows, “wicks” or “tails”. These wicks represent the price travel during the trading day that was outside the price variation between the open and close values. Not all candlesticks have upper wicks, and not all candlesticks have lower wicks. Some candlesticks have no wicks at all!
What Morning Doji Star Patterns Look Like
A Morning Doji Star forms at the end of a downward trend and is comprised of three candlesticks. The first should be large and negative (black/red on the chart). The second should be a “Doji” candlestick – which means a stick with wicks above and below, but an extremely thin body. It can be either positive or negative, but represents a largely stagnant trading day where buyers & sellers were very equally matched & the price stayed stable. The third candlestick should be a large positive (white/green on the chart) candle, demonstrating that the price is starting a reversal into a bullish trend.
The visual difference between a Morning Doji Star and a plain Morning Star is simply the doji second candle. Functionally it is largely the same in both what it represents (a possible bottoming out of a bearish trend that is reversing into a rally) and how most traders react to it.
Some traders consider the Morning Doji Star to be a more reliable/stronger indicator of a bullish reversal than a plain Morning Star because they demonstrate a narrower trading window in the middle and higher potential positive momentum heading out of the pattern.
Real World Morning Doji Star Examples:
Morning Doji Star Trading
Traders looking to act on a Morning Doji Star treat it as they would a normal Morning Star candle pattern – using it as an indicator of a more likely shift into a bullish/positive trend over the next 1-2 weeks. This makes it most useful to traders looking to trade over a short term.
Some traders consider the Morning Doji Star to be a safer bet than a plain Morning Doji, as it can indicate the possibility of greater positive momentum coming out of the pattern.
As with all patterns, it’s important to remember that nothing is certain when it comes to the market. Candlestick patterns are looking at a particularly narrow view of the market, which can mean higher uncertainty & thus risk. It’s always possible that the doji & following positive candle represent only a brief pause in the price’s fall, and traders who buy at that point could get caught out.
Traders should consider setting a stop loss below the lowest point (body or wick) between the first two candles in order to limit losses in the case that their reversal prediction is wrong.