This 3-candlestick pattern is not just an early riser but following its rules can give you a strong signal in today’s markets.
Although it’s not a popular candlestick pattern to talk about, the morning doji star is something you should be aware of as a lot of profitable trading opportunities could be missed if you can’t recognise these.
This guide is built to take any level trader and get them to understand the theory and how to trade a morning doji star.
Let’s dive in:
What is a morning star candlestick pattern?
The Morning Star candlestick pattern is a bullish reversal pattern that signals the end of a downtrend and the start of an uptrend.
The pattern consists of three candles. The first candle is a long bearish candle, indicating a strong downtrend.
The second candle is a small-bodied candle that gaps down from the first candle, indicating indecision in the market. The third candle is a long bullish candle that gaps up from the second candle, indicating a strong uptrend.
Okay, time for some theory behind the morning doji star pattern.
So this is essentially a bullish reversal pattern and can help traders enter the market at a swing low point of the trend.
The reason this occurs is that the buyers completely exhaust the sellers out at this swing point.
We can rationalise this because the candlestick is in three parts, each weakening the sellers power until it finally submits to the buyers.
If you spot one of these patterns, then you have a good idea that the momentum is behind the buyers because of this pattern.
This is part of the Doji family, which is a candlestick where the open and close print at the same price.
Thus, they are known as indecision candlesticks.
With the intel gathered from this morning star candlestick pattern, it is possible for traders to make a trading decision off on it.
Here’s an illustration of the morning doji star
How accurate are they?
You will find these candlestick patterns form in lower timeframes much more frequently, because of the limited time traders can battle it out during the trading session.
For example, 1 minute of price action has a significantly lower volume compared to a 1-day chart.
Luckily, Tom Bulkowski has worked on these patterns and his findings are that a morning doji star pattern has a 74% chance of generating a bullish reversal.
This is a strong indication of a reversal but is not guaranteed.
Now you are armed with some indication of the reversal chance, you’ll make sure to pay attention to these patterns in the future.
What is the best time frame to use them?
If you’re looking for consistency, the key is to pick the right time frame for you. I recommend working with your favourite chart time frame, or a time frame that you’re most comfortable with.
Timeframes really don’t matter.
There is no such thing as the best time frame or the worst time frame. It all comes down to personal preference.
Some traders are more suited to 5-minute charts, while others may be better suited to 4-hour charts.
It’s a matter of finding your comfort zone and learning to adapt to whatever timeframe you prefer.
How to identify a morning doji star pattern
This is a 3-candlestick pattern and is really easy and obvious to identify.
Firstly, they are found on swing lows and in downtrends.
Secondly, the 3 bar pattern goes in this order:
- Bear candlestick
- small doji
- Bull candlestick
The small doji – or the middle candlestick – must create a lower low and must be central to make it a valid signal.
Here is an example:
The important factor is that the doji is tiny.
We’re talking about the high and low being between a few pips of both of the outer candlestick’s close and open price.
As you can see in the example above it’s compact, if the lows are lower or the highs are higher, then this is not a morning doji star.
The difference between a morning doji star vs a morning star candlestick pattern
The difference between the two patterns is the middle candlestick.
One is a doji candlestick which provides market indecision.
The other is a small candlestick with a body.
The difference here is that the doji shows that the battle between the buyers and sellers is closer and no side could overpower the other.
Thus an indecision was formed in the market’s eyes.
Here’s the thing if you think logically.
If indecision candlesticks are formed at the bottom of a downtrend, what does that tell you?
That it is most likely the buyers are dominating as they are already fighting an uphill battle to overturn the sellers who are in control (because of the downtrend).
So when you see this sort of indecision at such points of the markets, just think how the other side is able to drum up momentum and you can apply this logic with your technical analysis entering a trade.
How to trade a morning doji star pattern?
What I like to share with traders is to not just think of what the price action is and robotically follow it.
The reason why I teach the theory behind the momentum of chart patterns and candlesticks is so you can engage with the market at a higher level and filter out bad trades accordingly.
So make sure you do review the theory behind all candlestick patterns so you actually question the formation and validate it.
With that being said, here’s a step by step guide on how to trade a morning doji star pattern.
1. Identify a downtrend
You should know how to identify a downtrend if you are reading around candlestick patterns, so I’m not going to go into that.
Here’s step 1:
2. Identify the morning doji star pattern
Wait for the formation to complete, you can instantly discredit any doji patterns that form and a large lower or higher wick is formed.
(This will be dragonfly doji or gravestone doji formations instead)
Remember, we are looking for a doji with tiny wicks that has created a lower low.
3. Set the stop loss
Once the bullish candlestick pattern has formed and the signal is validated you want to set your stop loss 1 or 2 pips below the low of the doji candlestick as you can see below:
4. Execute the trade
You want to place your entry 1 or 2 pips higher above the bullish candlestick pattern’s high OR the bearish candlestick’s high – whichever is higher.
This gives confirmation that the markets are looking to go higher.
Once this has been set, we just have to wait for the market to hit the buy order and execute the trade.
5. Take a profit
You should set your take profit level based on your risk management level.
Some traders are more aggressive than others, but for simplicity’s sake, it would be best to look for the nearest resistance level.
This trade finished after hitting out take profit level that was set to the resistance level.
As you can see this is a strong pattern and can work wonders.
Limitations of the Morning Star Candlestick Pattern
While the Morning Star candlestick pattern is a reliable bullish reversal pattern, it is not foolproof. Traders should be aware of the limitations of the pattern before using it to make trading decisions.
One limitation of the Morning Star candlestick pattern is that it can take time to develop. Traders may miss the opportunity to enter a trade if they wait for the pattern to form completely.
Another limitation is that the pattern can sometimes be false. A false Morning Star candlestick pattern can occur when the second candle is not a small-bodied candle, or when the third candle does not gap up from the second candle.
Finally, traders should always use the Morning Star candlestick pattern in conjunction with other technical analysis tools to confirm their trading decisions.
Conclusion: Morning doji star Pattern, should you trade it?
Now you know the theory behind the morning doji star pattern and how to trade it.
The question is, should you trade them?
Personally, they are not the first thing I look for but when I do see them appear – you can bet your house that I’m going to take a potential trade from it.
If I miss it, I’m not too worried about it. In fact, sometimes the markets will throw multiple patterns at you at once.
So it is best to get familiar with the most common ones and build on your framework and build out from there.
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