Introduction
The Morning Doji Star is the aggressive sibling of the standard Morning Star. The key difference is the middle candle: instead of a small body, it is a Doji (where open and close prices are equal).
This pattern suggests that the market didn’t just slow down—it completely froze before reversing.
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How to Identify It
- Candle 1: Long Red candle.
- Candle 2: A Doji that gaps down below the first candle’s body.
- Candle 3: A strong Green candle pushing up into the first candle’s range.
The Psychology
A Doji represents perfect indecision. When a market crashes (Candle 1), then freezes (Candle 2), and then rallies (Candle 3), it creates a “V-shaped” bottom. This often triggers a “short squeeze,” where bears scramble to exit their trades, pushing the price up even faster.
Trading Strategy
- Volume Watch: Look for low volume on the Doji and explosive high volume on the third Green candle.
- Stop Loss: Strictly below the low of the Doji.
- Risk: This pattern is more volatile; ensure your position size accounts for wider stop losses.