Trading with a Minimalist Approach: Profiting with the Morning Doji Star

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If you are a fan of candlestick patterns and looking for a simple yet effective trading strategy, this article is for you.

What is the Morning Doji Star?

The Morning Doji Star is a three-candlestick reversal pattern. The key confirmation for this pattern is that the third candle must close above the halfway mark of the first candle. Essentially, it functions as a bullish reversal pinbar.

Combining Candlestick Rules

This pattern signals a strong bullish reversal, making it a prime setup for buying opportunities.

Where to Find the Morning Doji Star

While primarily a bullish reversal pattern, the Morning Doji Star can appear in both uptrends and downtrends. For instance, in an uptrend, using EMA20 and EMA50 helps identify the trend. The pattern often forms after a pullback, indicating a continuation of the uptrend.

How to Trade the Morning Doji Star

There are three common ways to trade this pattern:

1. Double Bottom
2. V-Bottom
3. Divergence

Double Bottom Trading

The double bottom is a reliable bullish reversal pattern. When combined with a Morning Doji Star, it provides a strong buy signal. For example, at the second bottom, if the market tests and then closes above the previous low, it indicates strong support. A Morning Doji Star forming here with the third candle closing above the first signals a robust bullish move, offering a clear buy signal and a logical stop loss below the pattern.

V-Bottom and Morning Doji Star

A V-Bottom is another bullish reversal pattern, forming a V shape. Although less common than the double bottom, a Morning Doji Star appearing at a V-Bottom, especially at a strong support level, presents an excellent trading opportunity.

Trading with Divergence

Another strategy involves combining the Morning Doji Star with bullish divergence, identified using the Stochastic oscillator. Bullish divergence occurs when the market makes a lower low while the Stochastic makes a higher low. If a Morning Doji Star forms at this second low, it indicates a strong buy signal. For instance, a classic Morning Doji Star forms when the third candle breaks below the second candle’s low but closes above the first candle’s high, confirming a reliable bullish reversal.

Examples

1. Double Bottom Example: At the second bottom, the market tests the previous low but closes above it, showing strong support. A Morning Doji Star forms, with the third candle closing above the first, signaling a buy.
2. Bullish Divergence Example: The market creates a lower low, but the Stochastic oscillator forms a higher low. A Morning Doji Star at this point indicates a high-probability buy signal.

By integrating these strategies, traders can effectively use the Morning Doji Star to capitalize on potential market reversals.