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. The morning star consists of three candlesticks with the middle candlestick forming a star. Morning star is a powerful candlestick pattern, and most price action traders use it in their trading strategies. However, in forex trading, no pattern can guarantee you a 100% win rate. It will require some additional market analysis and as always, excellent money management.
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.
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.
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.
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.
They are used by technical chart analysts as a signal to identify bullish reversals after a downward-trending price period. Traders are able to confirm the formation of a Morning Star pattern using indicator reading that might suggest that asset prices have become oversold.
A Morning Star pattern does not require difficult calculations and it allows traders to spot bullish trend reversals in their early stages.
A Morning Star pattern will often near an important support level because these are areas of the market that have attracted buying activity in the past.
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 Conclusion
The morning star candlestick pattern is easily recognizable on a chart since it consists of three different candlesticks. The first candlestick drops with a gap down, followed by the third candlestick, which is followed by a gap up to the third and final candlestick of the morning star index.
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. One should not trade purely on price action patterns. When a morning star is backed up by volume and other technical indicators like a support level, then it can help to confirm the signal.
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