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Friday, March 7, 2008

MORNING DOJI STAR vs. EVENING DOJI STAR

Morning Doji Star & Evening Doji Star resembles Morning Star & Evening Star.
Morning & Evening Doji Star patterns can be seen as the variation of Morning & Evening Star patterns.
The main difference is that for Morning & Evening Doji Star, the 2nd candle is a Doji.

When the 2nd day candlestick is a Doji (i.e. Morning & Evening Doji Star), the chances of reversal are higher, and hence the reversal patterns are usually deemed more significant.



MORNING DOJI STAR (BULLISH)
Morning Doji Star
is a bottom reversal pattern / bullish reversal pattern.
It may be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

Morning Doji Star pattern consists of 3 candlesticks:
1) A long-body black/red candle, extending the existing downtrend.
2) A Doji candlestick that gapped down on the open below the close of the previous candle.
3) A long-body white candle that gapped up on the open and closed above the midpoint (half) of the black/red body of the first day.

The selling pressure has been dominating the market for some time. The appearance of yet another long black/red candle confirms that the sellers (bears) remain strong.
On the next day (2nd day), the price gaps down below the closing price of the previous day’s candle, providing further evidence of selling pressure.
However, after the gap down, the decline ceases. The price might move only in a small range and closes at the opening level at the end of the day. As a result, a Doji forms, indicating market indecision and a potential trend reversal. The volume of the Doji’s day should also shrink, reflecting complete market indecision.
On the 3rd day, the price gaps up and then rallies, forming a long white candle that closes above the midpoint level the black candle on the 1st day. This confirms the bullish reversal, particularly when accompanied by a surge in volume.

EVENING DOJI STAR (BEARISH)
Evening Doji Star
is a top reversal pattern / bearish reversal pattern.
It could be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

Evening Doji Star pattern consists of 3 candlesticks:
1) A long-body white candle, extending the existing uptrend.
2) A Doji candlestick that gapped up on the open above the close of the previous candle.
3) A long-body black/red candle that gapped down on the open and closed below the midpoint (half) of the white body of the first day.

The market has been overwhelmed by strong buying pressure for some time. The appearance of yet another white candle confirms that the buyers (bulls) are still dominating.
On the following day (2nd day), the price gaps up above the closing price of the previous day’s candle. Nevertheless, after the gap up, the price does not continue to rally further. The price might only move in a small range and closes at the opening level at the end of the day. Consequently, a Doji is formed, signaling market indecision and a potential trend reversal. The volume of the Doji’s day should also shrink, reflecting complete market indecision.
On the 3rd day, the price gaps down and then declines, forming a long black/red candle that closes below the midpoint level the white candle on the 1st day. This confirms the bearish reversal, particularly when there is a surge in volume.

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

Related Topics:
* Learning Charts Patterns
* FREE Trading Educational Resources You Should Not Miss
* Options Trading Basic – Part 1
* Options Trading Basic – Part 2
* Understanding Implied Volatility (IV)
* Option Greeks

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