BQLearning: What Are Doji, Morning Star Doji And Hammer Candlesticks?
(Source: BloombergQuint)

BQLearning: What Are Doji, Morning Star Doji And Hammer Candlesticks?

BQ Learning is a special show that seeks to demystify financial markets, economic theories, legal processes and political structures.

In this series, we explain how technical analysis works; how to identify trading opportunities through it and decode various concepts associated with it.

Doji

A Doji candlestick indicates indecision between buyers and sellers in the stock market and it may signal a price reversal or trend continuation.

A Doji is formed when a stock’s open and close are virtually equal. The length of the upper and lower shadows—the high and low of the day, respectively—can vary, and the resulting candlestick looks like a cross.

Morning Star Doji

A Morning Star Doji is used by stock analysts to predict price movements of a security, derivative or currency over time. It comprises three candles—a large red candlestick, a small-bodied candlestick, and a green candlestick.

  • The first is a long bearish candle, indicating a long move down.
  • The second is a short candlestick indicating price consolidation and indecision.
  • The third is a long bullish candlestick, gaping higher than the previous candlestick.

This indicates reversal and beginning of a new uptrend. In contrast, an Evening star Doji identifies an upcoming downtrend.

Hammer

A hammer is a price pattern that occurs when a stock trades significantly lower than its opening price, but rallies to close near its open. It suggests the market is attempting to determine a bottom.

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