Definition - Normally appearing in a downtrend, this pattern gives a first warning that the pattern is about to change. Consisting of both a Doji with a downward gap and a black candlestick, the Doji can form in a number of different shapes. For example, a ‘Bullish Dragonfly Doji’ is seen when the Doji forms an umbrella whilst a ‘Bullish Gravestone Doji’ is seen in the event of an inverted umbrella. Regardless of the shape, they all fall under the category of Bullish Doji Star.
- During a market that is experiencing a prevailing downtrend, the first day will see a black candlestick form.
- On the second day, a Doji will form that gaps down.
Patterns and Flexibility
In truth, the Bullish Doji star is actually relatively simple and needs to start with a normal or long black candlestick. After this, the Doji has to be gapping down for the pattern to continue.
Behaviour of Trader
When the pattern starts, the market is in a downtrend and the black candlestick should confirm this. When the lower price is seen at the opening of the next day, trading is held within a small range. At close, the price is relatively similar to the opening which causes the Doji. During the downward trend itself, the bears were in control but this changes with the appearance of the Doji star. Now, the bears and bulls are at a similar level. Because the energy of the downward trend is dropping, the continuation of the bear market does not look favourable.
Buy/Stop Loss Levels
For there to be confirmation, the price will have to cross above the level - in this scenario, the confirmation level is defined as the midpoint between the previous candlestick and the Doji (in the gap). Of the two lows, the lower will be considered the stop loss level. Finally, if the prices go down following the buy - or if there are two consecutive lows beneath the stop loss level - the stop loss will be triggered assuming that there is no bearish pattern.