Definition - Occurring in an uptrend, this pattern will forewarn traders of a change in the trend. Consisting of both a white candlestick and a Doji that gaps up when opening, the Bearish Doji Star can actually take different forms. In some circumstances, the Doji could shape like an umbrella and this will be called a Bearish Dragonfly Doji. Other times, it could look like an inverted umbrella and this would be considered a Bearish Gravestone Doji.
- On the first day, a white candlestick will form in a market that is experiencing a prevailing uptrend.
- On the second day, a Doji will appear that gaps up.
Patterns and Flexibility
After starting with a white candlestick that is either normal or long in length, the pattern must continue with a gapping up Doji.
Behaviour of Trader
When the white candlestick forms, the market is already in an uptrend and this becomes somewhat confirmed. On the next day, the market opens higher and gaps up. Throughout the day, the trading remains within a small range before then closing at a similar price to the open which forms a Doji. During the uptrend, the bulls were enjoying control but the Doji suggests that the bears have levelled and that the market is in equilibrium. As the energy to continues to evaporate, the bulls fear for the continuation of the trend.
Sell/Stop Loss Levels
For there to be confirmation, the prices must cross below the confirmation level which, in this case, is considered to be the midpoint of the gap between the white candlestick and the Doji. In terms of the stop loss level, the last two highs will be used. If the price rises following the bearish signal, the stop loss will be triggered if two days of trading above the stop loss level occurs assuming that there is no bullish pattern.