Understanding the Doji Star

What is the Doji Star?

The Doji Star is a candlestick pattern that indicates potential reversal points in the market. It is formed by a Doji candlestick, which represents indecision, followed by a third candlestick that confirms the reversal. Depending on the direction of the reversal, it can be a Bullish or Bearish Doji Star.

How is the Doji Star Identified?

The Doji Star pattern is identified by:

1. First Candle: A long candlestick indicating the prevailing trend.
2. Second Candle (Doji): A Doji candlestick that opens and closes at nearly the same price, signaling indecision.
3. Third Candle: A candlestick that confirms the reversal in the direction of the Doji.

When to Use the Doji Star

The Doji Star pattern is useful for:

• Reversal Scenarios: It signals potential reversals after a strong trend.
• Confirmation: Use additional indicators or follow-up candles to confirm the reversal signal.

Formula Example

To identify the Doji Star:

1. Identify the First Candle:
   • Condition: A long candlestick in the direction of the prevailing trend.
2. Check for the Doji:
   • Condition: A Doji candle with open and close prices very close or equal.
3. Assess the Third Candle:
   • Condition: The third candle should confirm the reversal in the direction of the Doji.

For example:

• First Candle (Bullish): Open = 100, Close = 110
• Second Candle (Doji): Open = 110, Close = 110
• Third Candle (Bearish): Open = 110, Close = 105
• Condition Met: The Doji Star pattern is complete when the third candle confirms the reversal.

Parameters

The parameters for identifying the Doji Star pattern include:

• Data: Defines the type of data to use for the pattern.

  • Value: ohlc
  • Description: The pattern uses Open, High, Low, and Close prices.

• Previous N Candles: Number of preceding candles to check.

  • Default Value: 1
  • Min Value: 1
  • Max Value: 300
  • Description: Checks for the Doji Star pattern in the last N candles.

• Tolerance: Acceptable range for the Doji body size.

  • Default Value: 0.1
  • Min Value: 0
  • Max Value: 1
  • Description: The body size of the Doji must fall within this tolerance level.

• Pattern Type: Specifies the type of pattern (Bullish or Bearish).

  • Default Value: :bullish
  • Drop Down Values: :bullish, :bearish
  • Description: Indicates whether the pattern is bullish or bearish.

Conclusion

The Doji Star candlestick pattern helps traders identify potential reversal points in the market. It should be used in conjunction with other technical indicators to confirm the reversal and guide trading decisions.