Bearish Doji Star Explained & Backtested (2024)

The bearish doji star is a two-bar bearish reversal Japanese candlestick pattern that historically leads to near-term volatility.

Traders using traditional technical analysis methods to go bear lose money across all markets tested.

Not so hot, right?

But what if I told you that you could turn this unprofitable pattern into a profitable one by listening to the data?

Would you be interested?

If so, keep reading if you want to learn how to trade bearish doji star candlestick patterns in a profitable, data-driven way.

What Is a Bearish Doji Star Candlestick Pattern

The bearish doji star is a two-bar pattern that supposedly alerts traders of a bearish reversal. And while some of the data does suggest this is true, it’s a better indicator of incoming volatility.

But before we dive into the past performance of this bearish doji star pattern, let’s learn how to identify it on our candlestick charts.

How to Identify the Bearish Doji Star Candlestick Pattern

The following are the requirements for a valid bearish doji star pattern:

• The first candle must have a long bullish real body.
• The second candle must be a doji that gaps up.
• The pattern must occur in an uptrend.

We see the bearish doji star on the TransDigm (TDG) daily chart occurring on September 27th, 2021. The price trend is up as prices are above the 50-day simple moving average. The first bar is a relatively long bullish closing marubozu candlestick, then an upside gap doji – a doji is a candlestick where the opening and closing prices are equal or similar. 

With an understanding of how to identify this supposed bearish reversal pattern, let’s learn how to trade this pattern in a data-driven way.

How to Trade the Bearish Doji Candlestick Pattern

The bearish doji star is traded optimally using a bullish mean reversion strategy in all markets.

 But before we learn how to trade this two-bar pattern in a data-driven way, let’s understand how most traditional technical analysts trade this pattern.

Bearish Doji Star Bearish Reversal Trade Setup

The bearish doji star candlestick pattern occurs on Google’s December 23rd, 2021, daily chart. We see that price is above the 50-day simple moving average, which we’re using as a proxy for a bull market or uptrend. We see a large bullish marubozu candle, then a gap up into a gravestone doji.

With the pattern identified, traders traditionally enter short on a break of the low of the second candle and place a stop loss above the high of the first candle, anticipating a downtrend as the future direction.

Bearish Doji Star Bullish Mean Reversion Trade Setup

We see the bearish doji candle pattern once again. The stock price is in an uptrend as it’s above the 50-day simple moving average. We see a long-bodied bullish candle on the first day, followed by a second-day small doji that gaped up. 

With the pattern identified, savvy data-driven traders wait for the price to cross down below the low of the candlesticks pattern and enter long when prices come back up through that low with a stop loss of one ATR below the same price.

Let’s make this lucid using the above Apple example.

The low of the doji star pattern occurs on the first day at a price of $122.25 on December 7th, 2020. The next day, the price drops below the pattern’s low. Now the data-driven trader needs to wait for the price to move back up past $122.25. This occurs on the fourth day, where a data-driven trader would profit handsomely using this mean reversion strategy.

Does the Bearish Doji Star Pattern Work? (Backtest Results)

Using the following rules, I backtested the bearish doji star candlestick pattern on the daily timeframe in the crypto, forex, and stock markets.

• A close above the 50-day SMA constitutes an uptrend.
• I tested risk-reward ranges from 1 to 5. 
• The optimal risk-reward ratio is selected using profit per bar.
• Entry and exits are discussed in the how-to trade section above.
• Confirmation must occur within three days of the pattern signal.

Similar Candlestick Patterns

Multiple candlestick patterns are similar to the bearish doji star. Understanding the differences between these patterns is essential when using candlestick pattern technical analysis.

Bullish Doji Star vs. Bearish Doji Star

The bullish doji star is the exact opposite of the bearish doji star. The bullish doji is a two-bar bullish reversal pattern, whereas the bearish doji star is a two-bar bearish reversal candlestick pattern.

The bearish doji star has a long green candle and then a doji that gaps up; the bullish doji star has a large black candle with a doji following that gaps down. 

Both anticipate a trend reversal, but the bullish doji star occurs in a downtrend while the bearish doji star, as we’ve just seen, appears in an uptrend.

Evening Doji Star vs. Bearish Doji Star

The evening doji star candlestick pattern is a three-bar candlestick pattern than contains the two candles of the bearish doji star. The only difference is that the evening doji star has a third candle that closes at or below the midpoint of the first white candlestick.

The Bottom Line

The bearish doji star occurs in all markets and supposedly portends a bearish reversal; however, history tells us otherwise. The bearish doji star tells us that volatility is incoming in all markets. The best way to profit from this volatility is to use a bullish mean reversion trading strategy.

Looking to go in the other direction? I backtested and analyzed the best bearish candlestick patterns, so you don’t have to.