BULLISH MORNING DOJI STAR
Definition
This is a three-candlestick pattern indicating a major bottom reversal. It consists of a black candlestick, followed by a Doji that gaps down to form a Doji Star. The third candlestick is white, closing well into the first session’s bearish body. This formation is a distinctive bottom pattern.
Recognition Criteria
1. The market is currently defined by a dominant downward trend.
2. We see a black candlestick on the first day.
3. Then, we see a Doji on the second day that gaps in the direction of the downtrend.
4. A white candlestick is observed on the third day.
Pattern Requirements and Flexibility
The Bullish Morning Doji Star pattern begins with a black candlestick, followed by a doji that gaps down below the first day’s close. The third day features a white candlestick that opens at or above the doji’s opening price and closes significantly into the range of the first day’s black candlestick. The third day’s closing price should ideally reach at least the midpoint between the first day’s opening price and the second day’s lowest point.
Trader’s Behavior
A downtrend is already established, and the black candlestick confirms the continuation of the downtrend. The appearance of the Doji that causes a gap indicates that bears are still pushing down the price. However, this tight price action between the open and the close shows indecision as well. On the third day, the body of the candlestick is above the previous day, trying to cover some of the ground from the down day. A significant trend reversal has occurred.
Buy/Stop-Loss Levels
The confirmation level is set at the last closing price. For confirmation, prices need to surpass 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.