In this article, we are going to discuss the morning star candlestick pattern. Like many candlestick patterns, it tells a story…and if you seek confirmation and trade it properly, you are sure to enjoy the tale. Candlestick patterns are a form of technical analysis that traders can utilize to determine possible price direction in the near future of an asset. Candles, or bars, tell us information such as the high, low, open, and closing price of the instrument as well as hints of trader participation.
A candlestick or series of candlesticks can illustrate a story by the visual patterns they produce. Traders can see the information and with the use of other technical indicators or trading strategies, they can confirm possible trade opportunities.
Candlestick patterns are a lagging form of technical analysis. What this means is that each bar has to complete for a trader to use the information to their advantage. No matter that fact, they still prove to be useful and reliable when combined with other forms of confirmation.
Whether you are trading the stock market, forex market, futures, penny stocks, etc., knowing candle patterns can be an important technical analysis tool to add to your trading strategy.
What Does the Morning Star Candlestick Pattern Look Like?
Since candlesticks contain price information, the size of their bodies and range of wicks can dictate just how much the price fluctuates due to buying or selling pressure.
When you have a large-bodied bullish candlestick, you know the price is increasing as well as buying participation. When a large-bodied bearish candle forms, you know the price is decreasing and there is selling pressure. If a candlestick body is smaller, the modest move in price can inform traders that there may be a brief stall in trend and a possible reversal to follow.
It is important to understand this information because the morning star formation consists of three candlesticks: a large bearish candle, a modest or indecisive candle, and a long bullish candle.
First Candle
The first candlestick of the morning star has a large bearish candlestick body.
This strong bearish candle displays that there is participation from both bulls and bears, that selling pressure exists, and that the price is continuing to decrease.
Second Candle
The next candle or middle candle of the morning star is more modest in size. It is a small bodied candle that demonstrates only a small increase in price from the previous first candle.
The sentiment here is that the selling participation has subsided a bit and that the bulls and bears are facing off. There is more balance between the two parties, being demonstrated by the smaller fluctuation in price movement.
This candle can be either green or red with a small body, or even appear as a Doji candle. A Doji candlestick contains no body and is sometimes referred to as a Doji morning star pattern.
It is important to note that this middle candle should contain the low price in the formation.
Ideally, when a morning star forms, there is a gap down in price between the first candle and the second candle.
Third Candle
The third candlestick of the morning star candlestick formation has a long bullish candlestick body. This shows that the price is being pushed up and translates into a bullish reversal.
The price of the large bullish candle opens above the previous candle’s open price and closes near the middle, or higher, of the first candlestick.
In an ideal morning star pattern, there is a gap up in price between the middle candlestick and third candlestick.
What Does the Morning Star Candlestick Pattern Mean?
When you think of the word morning, you think of a start to a new day or a beginning. That same concept can be applied to the morning star.
The candlestick pattern appears after a downtrend and is one of several trend reversal patterns that exist. When the three candles form, you can take note that the current bearish decline throughout the trading day is ending and that a potential reversal may take place to the upside.
Like other candle patterns, such as the bullish engulfing, or bullish hammer, the price action of the morning star candles signal a bullish reversal or price reversing from a downward trend to an upward one.
How to Trade the Morning Star Candlestick Pattern
The morning star candlestick pattern is considered to be one of the more infrequent of the bullish reversal patterns. Regardless, when it forms, it is one to take note of. Like all candle patterns, a trader should not rely on the pattern alone to implement a trade position.
Candle patterns are like other technical analysis tools. They are best when validated by other methods such as technical indicators and trading strategies. Most traders will not secure a buy position until they have proof of the new uptrend.
To validate morning stars, volume needs to be present, candle gaps between the three candlesticks are ideal, and the middle candle should contain the lowest price point. Given the possibility of a fake reversal, traders should seek confirmation from a few sources to substantiate the bullish reversal.
The bar after the formation can provide insight and validate the bullish move. The price action of this fourth candle or next candle confirms the increase in price or can invalidate the market moves. The change in trend and development of trade opportunities can also be detected by using a supply and demand zone strategy or various moving averages.
When morning stars present, a trader may confirm the reversal in price direction by utilizing technical indicators such as the MACD, which measures trend, or the RSI, which can depict overbought or oversold market conditions.
If you are already in a bearish trade position, the pattern may signal you to exit your position once validated. If you are looking to take a trade, the reversal pattern may signal a long position or option call taking advantage of the new uptrend once validated.
Either way, the morning star candlesticks are most reliable when confirmed by other technical analysis tools, technical indicators, and trading plans.
Summary: Morning Star Candlestick Pattern
The morning star pattern is a bullish reversal pattern that consists of a three candle pattern sequence.
It is important to see a long bearish candlestick, followed by a smaller bodied candle, and then a strong, large bullish candle. The first candle and third candle must show a decision in price direction whereas the middle, or the second candle demonstrates a stalemate. The candlesticks in the morning star should contain volume as well, and the center candle should contain the lowest price.
Take note that the morning star pattern can appear on any asset and in any time frame. So, if you are a day trader, swing trader, or long-term investor, be sure to use the best time frames for your trading style to validate the movement.
The opposite candlestick pattern to the morning star is the evening star. The evening star pattern is a bearish reversal pattern and is seen at the end of an up-trending market.
Like with all candle patterns, do not rely on their information solely to enter trade positions. Seek confirmation for better reliability. Trading involves significant risk. It is highly advisable to practice identifying and utilizing candle patterns before implementing them live in your trading day.
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