How to Trade Using the Morning Doji Star Candlestick Pattern

FXOpen

Candlestick patterns help traders analyse and forecast price movements in financial assets. Although there are numerous formations, some are more reliable than others, and the morning doji star is one of the more dependable ones. This article delves into the definition of morning doji star and lists the technical analysis techniques you can use when trading with this formation.

What Is a Morning Doji Star?

The morning doji star candlestick is a reversal setup on price charts. It consists of three candles and is considered an alert of a potential trend reversal from a bearish to a bullish trend. The formation indicates a shift in market sentiment, with buyers gaining control.

FXOpen allows traders to engage in the art of trading this setup across a diverse array of financial instruments. The morning doji star can be explored within the realms of forex, stocks, ETFs, indices, cryptocurrencies*, and commodities.

Morning Doji Star

How to Spot the Morning Doji Star in the Chart

To identify the morning doji star chart pattern, look for the following characteristics:

  • The first candle is bearish, typically with a long body, indicating a downtrend.
  • The second candle is a doji, characterised by a small body with long upper and lower shadows, suggesting indecision in the market.
  • The third candle is bullish, usually with a long body, reflecting that bulls are gaining strength. The body of the third candlestick should close above the midpoint of the first bearish one.

Trading the Bullish Morning Doji Star

When trading with this formation, traders typically follow these steps:

  • Entry. They can enter a bullish trade after the setup is confirmed with at least 1-2 candles to be formed in the bullish direction or enter as soon as the third one closes.
  • Take Profit. Traders may consider setting a take-profit level by identifying a significant resistance level or by using technical analysis tools such as Fibonacci retracement levels.
  • Stop Loss. A stop-loss order is usually placed below the low of the first candlestick. This helps limit potential losses if the price moves against the forecast. Also, a trailing stop to capture further gains may be used as the price continues to rise.

Live Market Example

Live Market Example

There is a morning doji star on the H1 chart of GBPUSD. In this example, the third bar nearly closes above the midpoint of the first. The trader places a buy trade with a stop loss below the setup and a take profit at the next resistance level.

Through the user-friendly FXOpen TickTrader platform, you can access a range of powerful tools to examine and trade this formation. Moreover, by utilising this platform, you may refine their strategies.

Morning Doji Star vs Other Candlestick Patterns

The morning doji star resembles and sometimes is confused with other formations that provide other signals or differ in terms of signal strength. Therefore, it’s essential to distinguish between them.

Morning Doji Star vs Evening Doji Star

While the morning doji star in bearish markets is a bullish reversal formation, the evening doji star predicts a potential bearish reversal. The former consists of a long bearish candle, followed by a small-bodied doji, indicating indecision, and a long bullish candlestick. In contrast, the latter is the opposite, with a long bullish candle, a small-bodied doji, and a long bearish candle.

Morning Doji Star vs Morning Star

As mentioned above, the morning doji star is a bullish reversal pattern characterised by a bearish candle, a doji, and a bullish candlestick. On the other hand, the morning star is a broader bullish reversal setup consisting of a bearish candle, a small-bodied one, and a large bullish one. It does not specifically include a doji. The former provides a short-term alert, while the latter gives a longer-term signal.

Conclusion

The importance of incorporating other technical indicators and developing robust risk management strategies to mitigate potential losses can’t be overstated. Successful traders remain vigilant and adapt their strategies in the face of false signals.

To embark on your trading journey, you can open an FXOpen account to develop your own strategies. With an FXOpen account, you can refine your skills, gain practical experience, and make well-informed decisions.

FAQ

Why are candlestick patterns important in trading?

Candlesticks are important tools because they provide valuable insights into sentiment and price direction. Traders use them to identify buying or selling opportunities, confirm trend changes, and make informed trading decisions.

How can traders use candlestick patterns effectively?

Traders can use candlestick setups by considering confirmation from other technical indicators or chart patterns, analysing the timeframes they are using, and practising to recognise and interpret trading alerts. It's also important to combine candlestick analysis with risk management strategies.

Can the morning doji star be reliable in all market conditions?

The reliability of the setup can vary depending on market conditions. It is generally considered more reliable when it occurs after a significant downtrend, indicating a potential reversal to an uptrend. However, in choppy or sideways trends, the formation's effectiveness may be lower. Traders always consider the overall context and use additional confirmation signals to increase the reliability of the formation.

Can the morning doji star be used in combination with other technical analysis tools?

Yes, as mentioned above, the morning doji star may be used in combination with other technical analysis tools to enhance trading decisions. Some common indicators are moving averages, RSI, MACD, and Parabolic SAR.

*At FXOpen UK and FXOpen AU, Cryptocurrency CFDs are only available for trading by those clients categorised as Professional clients under FCA Rules and Professional clients under ASIC Rules, respectively. They are not available for trading by Retail clients.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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