The morning star candlestick pattern is the perfect indicator of the lowest point of the downtrend. Both price action investors and trend followers are seeking out these patterns. Because whenever they appear, it is time to take action. This article is written to explain to you how to recognize the morning star chart pattern and then, how to trade it on the Olymp Trade platform.
How to recognize the morning star pattern?
The pattern called morning star is formed by 3 candles and, as I mentioned in the beginning, it appears at the bottom of the existing downtrend.
Typically, the first candlestick will be a large reddish one. It signifies a big drop in prices because of the intense work of bears.
Doji will be the second candle in the pattern. It demonstrates the activity of the bulls. The result is a slight price increase. What is characteristic for this doji candle is a quite small body and wicks at both sides. The candle’s low is often at the same level as the preceding bearish candle.
The third candle in that pattern is a large green one what means that the buyers came into action taking control over the market and increasing the prices.
Reading the morning star pattern
When the bears have control over the market direction for a period of time, you can expect the bulls to enter the battle soon. In the beginning, their fight is represented by a doji candle in the middle of the pattern. And after that, the bulls win and the trend reverses.
In the above chart for the USD/JPY currency pair, you will clearly see when the price finds some support level after a large red candle appears. The bulls activity creates a moment of indecision and after that, a large green candle is formed.
Once you identify the morning star pattern, you should enter the trade just after breaking the top of a doji candle or wait until the following green candle will clearly show that there is a change in price direction. It is recommended to place a trade for at least 15 minutes. In the above example, each candle corresponds to 5-minute timeframe, so 15 minutes is the shortest period you should put your trade.
Now you know how the morning star pattern looks like and how it works. Open a free demo account and practice using this pattern in trading. Tell us about your experience. Use the comment section down below.
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