August 2, 2021

Trading the morning doji star candle

How to day trade the morning doji star candle stick

Chances are that you have heard the word doji candlesticks while surfing the internet or researching technical analysis. The doji is a Japanese word that translates to blunder or mistake and it’s used to describe the rarity of stock price opening and closing at the same time. Depending on price action and market structure, different doji candlesticks can be formed like a cross, inverted cross, or a plus sign.

Contrary to popular misconceptions about doji candlesticks, by themselves, doji candlesticks are neutral patterns that can form other patterns. When doji candlesticks feature or form other patterns, it is given a unique name. Popular doji candlesticks that are mostly traded include the morning doji star candle stick, dragonfly doji candle stick, and gravestone doji candle stick.

As we mentioned earlier, these doji candle sticks occur at different times and they serve as pointers to likely scenarios that will play out in the market. If you are trading stocks or any other securities, the doji candle stick is formed when the stocks price opens and closes over a period of time and they often signal a reversal. However, even though doji candle sticks are considered reversal patterns in technical analysis, one must be careful not to rely on doji candle stick formations alone it’s always best to have other indicators and oscillators confirm if what you have on your chart is a reversal or not. Most importantly, analyze price action and be mindful of the trend.

Types of doji you should know as a day trader

Recall that doji candle sticks are signs of indecisions in the financial markets and they also signal a change in trend or reversal. Candle sticks are traders’ most used trading tools because they are easier to identify and their wicks tell a great deal about market sentiments while also giving pointers to where you can place your stop.

Doji candle sticks formations are generally classified into three major groups: the gravestone, long-legged, and the dragonfly. Others seldom spoken about doji candle sticks are the standard doji and the 4price doji.

Before we go on to discuss the types of doji candle sticks, let’s quickly touch on the famous morning doji star candle stick. This brings us to the question that is probably running through your mind;

What does morning star doji candle stick mean?

Unless you are just joining from this point, the answer to this question is a no brainer. It signals the reversal of a bearish trend. If a morning star is not forthcoming (or coming on time to help you make a decision) and you want to predict if a morning star is forming, you can do that by reading the relative strength indicator (RSI) to see if the stock is oversold when the price is nearing a support zone. That way, you will know if a morning star doji is underway or just around the corner.

The dragonfly doji candlestick

If you are familiar with candle sticks patterns, there are higher chances that you have crossed paths with a candle stick in the form of the letter “T” that’s a dragonfly doji candle stick. You should look it up in your charts when you are done reading this piece. You won’t miss it because it’s easy to spot.

Unlike its morning star doji candle stick counterpart which signals the take off an uptrend or bullish sentiment, the dragonfly doji candle stick can signal price reversal in either direction either an uptrend or a downtrend depending on the previous price action.

Dragonfly doji candle sticks are mostly formed when the stock’s high, open, and close prices are the same. When this happens and all three prices close at the same time, it forms a candle stick with a long lower shadow that tells the trader a tale of the aggressive selling that happened during the period of the candle and how the buyers or bulls pushed through to absorb the selling pressure and take the price way back to the top. As such, making the price of the stocks close near the open.

If you spot a dragonfly doji candle stick at the end of a downtrend at an area of support, it usually indicates the potential price rise. On the other hand, if a dragonfly is formed following an uptrend, it’s indicative of a potential downtrend build-up. However, it’s always best to see how the next candle plays out; especially where it closes. That way you will have an idea of what direction the reversal is headed. Having mentioned that, it’s worth mentioning that dragonfly doji candle sticks are not common sights. However, when they appear, they should be taken as a strong warning of the impending reversal. To avoid jumping the gun and been taking unaware, be sure to keep tabs on the preceding candle stick after the dragonfly and take note of where it closes. If the reversal is upwards, the next candle stick after the dragonfly doji candle stick should close above the close of the dragonfly. A strong indication of the uptrend reversal is an upward rally while a bearish rally confirms a downtrend.

The gravestone doji candle sticks

The gravestone doji candle stick is a bearish doji candle stick formation. It is formed when the open, low, and close of a candle stick are near to each other with a long wick (also known as the shadow) at the upper side of the candle stick. You can think of it as an inverted letter T. If you haven’t noticed, the gravestone doji candle stick is the opposite of the dragonfly doji candle stick.

Having established the fact the gravestone doji candle stick and the dragonfly doji candle stick are like opposite sides of a coin, you can trade them using the same principles we discussed under the dragonfly doji but in the reverse. Just so we are on the same page, the gravestone doji candle stick features a long upper shadow that shows the struggle between the bulls and the bears. The gist is that the bears stopped the bulls in their tracks by seizing the momentum and turning the trend around in their favor.

Like the dragonfly doji candle stick, the gravestone is also not a frequent occurrence. But when they appear, day traders know to take them seriously (especially when they are formed at key resistance levels). If you went bullish on a trade and the gravestone pops up, you should consider that as an early sign to take profits and secure your position because a downtrend is about to set in.

How to trade doji candle sticks

Every expert or experienced day trader will tell you not to trade candle sticks. Candle sticks formations are not to be traded by themselves and you should avoid making decisions off candle sticks alone. You can use them as part of your confirmations alongside other indicators. Keep your eyes on price action and market structure at every given time and adopt a top to bottom approach in your analysis start your analysis of market structure from higher time frames and work your way down to lower time frames to have a close-up feel of the market sentiments.