The ‘Bearish (Doji) Star’ is a two candlestick reversal pattern consisting of an initial big white candle followed by a small candlestick. The small candlestick could either be a spinning top or a doji that is located at the top of the candlestick pattern. This is a medium credibility reversal pattern that may lead into the more bearish ‘Evening Star’ pattern. The ‘Star’ in the patterns name is derived from the gap between the two candles.
Technical Description
1) Preceded by an uptrend the first candlestick should be white with a large body.
2) As with any star pattern the second candle should have an upside gap though a meeting of the bodies is permissible.
3) The wick and tail should be small, with the total candlestick size no more than a third of the average range for the given period.
4) In cases where an actual body is present the color of the body is negligible.
Mark’s Perspective
Though often overlooked, a critical component for the ‘Bearish (Doji) Star’ to be effective is the first candlestick. The bigger the white body the more likely that market is just taking a pause instead of preparing for a reversal. The second candle ending up with a small body after gapping up at the open signals bears have come into the market striking a balance.
Short positions may be taken if the candlestick following the pattern gapped down as it opened or when the next candlestick post a big black body with a lower close. Stops must be placed above the (Doji) Star.