Morning Doji Star Candlestick Pattern: Candlestick patterns are distinctive visual representations of price action over a specific period. These patterns, formed by open, high, low, and close prices, give insights into market sentiment and potential trend reversals or continuations.

Candlestick patterns assist traders in making informed decisions about buying and selling stocks by providing valuable information about market dynamics and potential trading opportunities. In this article, we will look at one such candlestick pattern the morning doji star candlestick pattern.

Morning Doji Star Candlestick Pattern – Definition

The morning doji star candlestick pattern is a three-candlestick pattern which indicates a bullish reversal and is similar to the morning star candlestick pattern. This pattern is preferred to appear after a downtrend as the probability of the bullish reversal indication derived by the formation of this pattern will have a higher probability of succeeding.

This three-candlestick formation consists of a long-bodied red candle followed by a doji candle which is then followed by a long-bodied green candle.

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Morning Doji Star Candlestick Pattern – Formation

A few conditions need to be fulfilled for a three-candlestick pattern to be called a morning doji star candlestick pattern and they are as follows:

  • The first candle must be a long-bodied bearish (red) candle along the downtrend.
  • The second candle must be a doji that opens with a gap down or near the red candle.
  • The third candle must be a long-bodied bullish (green) candle that opens above the doji candle.

Understanding the Morning Doji Star Candlestick Pattern

The morning doji star candlestick pattern generally shows a change in the market sentiment and a potential end of a downtrend. The first candle is red as it is a part of the downtrend hence the selling pressure is higher which causes the price to come down.

The second candle formed is a doji candle which indicates equal buying and selling pressure which means that there is a weakness in the downtrend. The third candle is green and this indicates that the buying pressure has overtaken the selling pressure thus indicating a change in the market direction. 

Based on the formation of this pattern and confirmation from other indicators, traders can choose to take a long position in the security.

Morning Doji Star Candlestick Pattern – Trading Strategy

Traders who wish to trade based on this pattern should ensure that the trend before the Morning Doji Star Candlestick Pattern needs to be a downtrend. Once that is confirmed, the following are the guidelines for taking a trade:

  • ENTRY: When the price of the stock starts trading above the close price of the third candle of the Morning Doji Star candlestick pattern, traders can take a long position.
  • TARGET: Traders can exit the long position when the price of the stock reaches near the immediate resistance zone. Once this level is reached, they can also book partial profits in the trade and hold on to the remaining position until the next resistance level.
  • STOP LOSS: Traders can place the stop loss near the low price of the morning doji star candlestick pattern.

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Morning Doji Star Candlestick Pattern – Example

In the above one-day chart of LYKA LABORATORIES, we can observe the formation of the morning doji star candlestick pattern at the bottom of a downtrend. As discussed in this article, the price of the stock saw a bullish reversal after the formation of this pattern.

At the time of the formation of this pattern, traders could have taken a long position when the price of the stock started trading above Rs. 112.5 and the stop loss was at Rs. 105

Difference between Morning Star and Morning Doji Star Candlestick Pattern

The Morning Star is formed with three candles: a large bearish candle, followed by a small-bodied candle, and finally, a large bullish candle closing above the first candle’s midpoint. On the other hand, the Morning Doji Star candlestick pattern features a doji candle instead of a small-bodied one in the second position, indicating heightened market indecision.

While both patterns suggest indecision followed by a bullish momentum, the indecision in the Morning Doji Star candlestick pattern is greater.

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Conclusion

Finally, the Morning Doji Star candlestick pattern provides traders with a strong indicator of a likely trend reversal in the financial markets. This pattern, when combined with other technical indicators and market research, may offer traders useful information for making informed decisions.

However, proper risk management procedures should always accompany trading. Traders that incorporate the Morning Doji Star candlestick pattern into their arsenal will be better able to recognize successful trading opportunities and handle market volatility with confidence.

Written by Praneeth Kadagi

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