What Is The Morning Star Candlestick Pattern & How To Trade With It

The Morning Star is a bullish reversal pattern that appears on the bottom of a downtrend. It consists of three main candles. It often indicates the ending of a downtrend and the beginning of an uptrend.

What is the Morning Star Candlestick Pattern?

The Morning Star is made up of a large candle, followed by a small candle, and a third long candle.

The first candle is bearish. It suggests bears are in charge, and the price is making new lows.

The second candle has a small body and a long wick. It can be bullish or bearish. It shows bears are still in control, but they are not pushing the price lower. If the second candle is bullish, this is a sign of a more definite reversal.

The third candle has a tall structure and is bullish. It holds the most significance. It tells that the bulls are in control and are pushing the price upwards.

These three candles can frequently emerge in the forex market. After the reversal, we can observe higher highs and higher lows.

Here’s what the pattern looks like on a chart.

Morning Star Candlestick Pattern on a chart
Morning Star Candlestick Pattern on a chart

The Morning Star has one variation; Morning Star. Sometimes traders can observe the Morning Star Doji. It represents indecision in the market. This uncertainty paves the way for bulls, and they prevent further selling.

Here’s the appearance of the Morning Star Doji.

Morning Star Doji Candlestick Pattern
Morning Star Doji Candlestick Pattern

The bearish version of the Morning Star Candlestick Pattern is the Evening Star Candlestick Pattern. It has a similar structure to the Morning Star and appears in an uptrend.

How to trade the Morning Star Candlestick Pattern?

Once you identify the Morning Star, it can give you signals to open at the third candle. As we mentioned above, the Morning compromises of three candles. The presence of a third candle (bullish) signifies that the price moves upwards, and we could look to go long. We can place a stop-loss near the recent low.

If you are a conservative trader, then you may choose to wait for the price levels to go higher. But the drawback of this technique is that the price can also go down.

There are technical indicators that confirm the formation of a Morning Star like the RSI or Stochastic Oscillator to show oversold conditions.

This is because Morning Star can give false signals. For example, sometimes, even though the Morning Star is present, the price moves downwards rather than going up.

The momentum oscillators can give you the precise direction of the market, whether the Morning Star is providing the right signals.

Morning Star Candlestick Pattern oversold condition
Morning Star Candlestick Pattern oversold condition

As you can see on the above chart, with the appearance of Morning Star, the Stochastic is giving an oversold situation.

Another essential aspect is volume contributes to the formation of Morning Star. The high volume on the third candle is seen as a bullish pattern, regardless of other technical indicators.

Morning Star Candlestick Pattern trading strategy

One of the ways to use the Morning Star pattern is through multiple timeframe analysis. This means looking for the Morning Star on longer timeframes and then zooming out to shorter timeframes to determine entry points.

But we could confirm the signals by using other indicators.

As mentioned earlier, the Morning Star is a bullish pattern, so it gives only buy signals.

Morning Star buy strategy

  • Confirm the appearance of the Morning Star in a downtrend.
  • Wait for the price bar to go bullish before entry.
  • Set a stop-loss near the recent low.
  • Exit the trade when the price declines.
Morning Star Candlestick Pattern buy setup
Morning Star Candlestick Pattern buy setup

Morning Star Candlestick Pattern Conclusion

The Morning Star Candlestick Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy.

I would prefer to use the majority of candlestick patterns such as the Morning Star Candlestick Pattern on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels, candlestick pattern has been formed or a particular indicator value has been reached.

The Morning Star Candlestick Pattern is just one method of market analysis amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.

Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.

The methods of implementing the Morning Star Candlestick Pattern into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.

Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.

If you would like to practice trading with the Morning Star Candlestick Pattern, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.

Happy trading!