The morning star candlestick pattern is a strong indication of a potential shift in market sentiment from bearish to bullish. The morning star pattern is made up of three candles, with the middle candle being a “star” that appears at the bottom of a downtrend.
The star is followed by a long bullish candle that opens above the previous day’s close, and then the third candle confirms the reversal by closing above the midpoint of the first candle.
Formation of Morning Star Candlestick
The morning star candlestick pattern is formed over three days.
- On the first day, a long bearish candle appears, indicating a downtrend.
- On the second day, a star-shaped candle appears, which indicates indecision in the market. This is often caused by the market pausing to catch its breath after a strong move.
- On the third day, a long bullish candle appears, which confirms the reversal in the trend. This is a clear indication that the buyers have taken control of the market, and it’s time to start looking for long positions.
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How to Identify Morning Star Candlestick
You can identify a morning star candlestick pattern by looking for three specific candles on the chart. The first candle should be a long bearish candle that indicates a downtrend.
The second candle should be a star-shaped candle that indicates indecision in the market. The third candle should be a long bullish candle that confirms the reversal in the trend.
The second candle in the pattern can take on a few different shapes like Doji, spinning top, small bullish or bearish candle. The key is that it shows indecision in the market and a potential pause in the trend.
In the above snapshot, you can see the second candle has different formats at different timeframes such as Doji, spinning top, and then hammer but all are making a morning star pattern.
You can read my article all 37 Candlestick Chart Patterns in the Stock Market, to learn about the most essential candlesticks for technical analysis.
How to Read Morning Star Candlestick
The morning star pattern is a bullish reversal pattern, which means that it’s a strong indication that the market is about to shift from bearish to bullish. The first candle in the pattern indicates a downtrend, the second candle indicates indecision, and the third candle confirms the reversal in the trend.
When trading a morning star candlestick pattern, it’s important to pay attention to the size of the candles as well. The bullish candle that confirms the reversal should be larger than the previous bearish candle, which indicates that the bulls are taking control of the market.
I also have explained the steps to use the candlestick for day trading, you can learn about how to do trades using candlestick charts.
How to Trade Morning Star Candlestick
When trading a morning star pattern, there are a few key things to keep in mind.
1. You should always wait for the third candle to close before entering a trade. This confirms the reversal in the trend and provides a strong indication that the bulls have taken control of the market.
2. You should place a stop-loss order below the low of the first candle in the pattern. This provides a clear level of support and helps to minimize potential losses if the trade doesn’t go as planned.
3. You should look for confirmation from other technical indicators before entering a trade. This could include looking for support and resistance levels, moving averages, or other chart patterns that indicate a potential shift in the market.
You should manage your risk and always have a plan in place with clear profit targets and stop-loss orders.
Check out – how to trade hammer candlesticks
Difference between Morning Star and Evening Star Candlestick
The evening star pattern is essentially the opposite of the morning star pattern, with a long bullish candle followed by a star-shaped candle and then a long bearish candle that confirms the reversal in the trend.
The key difference between the morning star and evening star patterns is the direction of the trend. The morning star pattern indicates a potential reversal from a downtrend to an uptrend, while the evening star pattern indicates a potential reversal from an uptrend to a downtrend.
Difference Between a Morning Star and a Doji Morning Star
The Doji morning star is a variation of the morning star pattern. Doji’s Morning star pattern is similar to the morning star pattern, but the second candle is replaced with a doji candle, which indicates even greater indecision in the market.
The key difference between the morning star and doji morning star patterns is the strength of the reversal. The doji morning star pattern is a stronger indication of a potential reversal, as the doji candle indicates even greater indecision in the market.
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Conclusion
The morning star candlestick pattern is a powerful tool to identify potential reversals in the market. But you shouldn’t use the morning start candlestick as the sole basis for making trading decisions.
You should always use a combination of technical and fundamental analysis to make informed decisions.
FAQs
One common mistake is entering a trade too early before the third candle has confirmed the reversal in the trend. Another mistake is not setting clear profit targets and stop-loss orders, which can lead to losses if the trade doesn’t go as planned.
In addition to the morning star pattern, there are a few other bullish reversal patterns to keep an eye out for, including the hammer pattern, the bullish engulfing pattern, and the piercing pattern. I have also discussed how to trade hammer candlestick patterns in detail to understand the market trend.
The morning star patterns do not occur frequently in the market, but they can be a strong indicator when they do occur.
Yes, you can use the morning star pattern for both long-term and short-term trading, but it is important to use other technical indicators to confirm the validity of the pattern.
Yes, you can use the morning star pattern in different markets such as forex, commodities, and stocks.
You can use the morning star patterns in building a trading strategy to identify potential bullish trends and buy opportunities. You can look for confirmation of the pattern using other technical indicators and analysis.
You can consider the morning star pattern a reliable indicator for predicting market trends, but you should always use it in conjunction with other technical indicators to confirm its validity.
The third candle in the morning star pattern shows that buyers have gained control of the market and are pushing the price higher. This is a bullish signal that can indicate a potential trend reversal.
The morning star pattern indicates that the selling pressure in the market has been exhausted and that buyers are starting to gain control. It can be a sign of a potential trend reversal from a bearish to a bullish trend.
For the formation of the morning star pattern, we consider three candlesticks in a row.
- The first candlestick is a long bearish candle,
- the second candlestick is a small candle that gaps down from the previous candle,
- and the third candlestick is a long bullish candle that closes above the midpoint of the first candlestick.
The morning star pattern is formed by three candles: a long bearish candle, a small candle that gaps down from the previous candle, and a long bullish candle that closes above the midpoint of the first candle.
A morning star candlestick pattern is a bullish reversal pattern that occurs at the bottom of a downtrend and signals a potential reversal in the market.
