How to trade the morning star candlestick pattern

Three outside up/down are patterns of three candlesticks on indicator charts that often signal a reversal in trend. The significance of this candlestick pattern is that, despite the bears temporarily winning the battle, the bulls were able to come back and eventually win. This candle morning star can be seen by how the Doji has a long upper shadow, which shows that the bears tried to push prices lower but eventually failed. The Morning Star is believed to be an indicator of potential market reversals and, therefore, can be used by traders to enter long positions.

You will always get thrown off guard whenever the market presents a variation of whatever candlestick pattern that you have memorized. Whatever thecandlestick patternthat you come across, you always have to be prepared that there are many variations to it. Small candle – Now, look for a small red candlestick that has a small body and very small shadows. As we can clearly see the price was moving lower in a stairstep manner creating a downtrend in the price action. When entering into a long position using the Morning Star pattern, it can sometimes be difficult to gauge where the price target should be placed. This is because the Morning Star pattern does not provide any clues as it relates to the extent of the price move that will follow. As such, you will need to use some other technical tool for exiting the trade.

A Complete Guide To Bullish Engulfing Pattern

Technically, the third day candlestick in the chart above is not a large bullish candlestick; in fact it is yet another doji. To quickly summarize, generally increased volume means increased attention by traders at the price levels representing that particular trading session. This eagerness and impatience by buyers to buy many shares and to pay higher prices for these many shares is a powerful sign of the bulls’ bullishness.

As the Morning Star is a three-candle pattern, traders often don’t wait for confirmation from a fourth candle before they buy the stock. Traders look at the size of the candles for an indication of the size of the potential reversal.

Understanding The Morning Star Candlestick Pattern

There are many candlestick patterns, and I could go on explaining these patterns, but that would defeat the ultimate goal. On the third day of the pattern , the market/stock opens with a gap, followed by a blue candle that manages to close above P1’s red candle opening. So, it’s important to understand what the candlestick patterns are telling you. The opposite pattern of the morning star pattern is the evening star pattern. So, with this in mind, let us look at the step by step process of identifying the morning star candlestick. It is then followed by a relatively small candle and the final one that looks like a star.

The third candle must be represented by a white candle that closes at least halfway up the first day’s black candle. Also, Day 3 broke above the downward trendline that had served as resistance for MDY for the past week and a half. Both the trendline break and the classic Morning Star pattern could have given traders a potential signal to go long and buy the Midcap 400 exchange traded fund. The candlestick on Day 2 is quite small and can be bullish, bearish, or neutral (i.e. Doji). A doji is a trading session where a security’s open and close prices are virtually equal. A star is a candlestick formation that happens when a small bodied-candle is positioned above the price range of the previous candle.

What is the morning star pattern?

Accurate – While no pattern is 100% accurate, the morning star tends to do relatively well. This happens mostly after a major news like interest rate decision, nonfarm payrolls, and manufacturing PMIs. In this case, you should look at a situation when the chart is forming lower highs and lower lows. Lastly,third is a bullish candle whose length is at least equal to half of the first candle. Let’s now look at a second example of the Morning Star set up.

You should consider whether you can afford to take the high risk of losing your money. An evening star is a stock-price chart pattern used by technical analysts to detect when a trend is about to reverse.

HOW RELIABLE IS THE MORNING STAR IN FOREX TRADING?

Morning star pattern is a powerful price signal with high precision. The morning star candlestick pattern is very popular with price action traders. The best combination is to use analytical indicators to identify trends. However, the sellers fail to force a close near the session’s low and the price rebounds higher to create a doji candle, which signals the indecision among the buyers and sellers. The next candle is a long bullish candle which forms the morning star pattern. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.