BULLISH DOJI STAR
Definition
This pattern emerges in a downtrend and signals a potential trend reversal. It comprises a black candlestick followed by a Doji that gaps downward at the opening. When the Doji resembles an Umbrella, it is termed a "Bullish Dragonfly Doji". Conversely, if it takes the form of an Inverted Umbrella, it is called a "Bullish Gravestone Doji". Collectively, these patterns are referred to as a "Bullish Doji Star", irrespective of the Doji’s shape.
Recognition Criteria
1. The market is currently defined by a dominant downward trend.
2. On the first day, a black candlestick is observed.
3. Then we see a Doji on the second day that gaps down.
Pattern Requirements and Flexibility
The Bullish Doji Star pattern should begin with a normal or long black candlestick. This must be followed by a Doji that gaps downward.
Trader’s Behavior
The market is in a downtrend, confirmed by a strong black candlestick. The next day, the market opens lower with a gap down and trades within a narrow range. The day closes at the opening price, forming a Doji. While bears were in control during the downtrend, the appearance of a Doji Star implies a shift, indicating equilibrium between bulls and bears. The bearish momentum is waning, suggesting unfavorable conditions for the continuation of the bear market.
Buy/Stop-Loss Levels
The confirmation level is set at the midpoint of the gap between the Doji and the preceding candlestick. For confirmation, prices must exceed this level.
The stop-loss level is set at the lower of the last two lows. After a BUY signal, the stop-loss is triggered if prices decline instead of rising and either close below the stop-loss level or record two consecutive daily lows below it, without any bearish pattern being detected.