“One cannot be too cautious”

One group of fascinating reversal patterns is those that include stars.

Exhibit 3.1. Star in an Uptrend and Downtrend

A star is a small red body (white or black) that gaps away from the large real body preceding it (see Exhibit 3.1). In other words, the star’s real body can be within the prior sessions upper shadow; all that is needed is that the real bodies don’t overlap (there are some exceptions to this rule, which are addressed later in this section). If the star is a doji instead of a small real body, it is called a doji star (Exhibit 3.2) The star, especially the doji star, is a warning that the prior trend may be ending.

The star’s small real body represents a stalemate between the bulls and the bears. The bulls are obviously in charge in a brisk

Exhibit 3.2. Doji Star in an Uptrend and Downtrend

ascending market. With the emergence of a star in such an environment, it is a signal of a shift from the buyers being in control to a deadlock between the buying and selling forces. This deadlock may have occurred either because of a diminution in the buying force or an increase in the selling pressure. Either way, the star tells us the rally's prior power has slightly dissipated. This means the market is vulnerable to a setback.

The same is true, but in reverse, for a star in a downtrend (sometimes a star during a downtrend is labeled a raindrop). The long black candle during the downtrend visually reflects that the bears are in command. A change is seen in the advent of the star, which signals an environment in which the bulls and the bears are more in equilibrium. In other words, the downward energy has thus been cooled. This is not a favorable scenario for a continuation of the bear market.

The Star is part of Four Reversal Patterns

1.  The Morning Star

2.  The Evening Star

3.  The Doji Stars

4.  The Shooting Star