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.
Pros and Cons of Using the Morning Star Pattern 📊
- Predictive Power: The morning star pattern is highly respected for its ability to indicate a potential trend reversal.
- Universality: This pattern can be observed in various markets, including forex, stocks, and commodities.
- Effective in Multiple Time Frames: The morning star pattern can be used in both short-term and long-term trading strategies.
- Requires Confirmation: To increase reliability, the morning star pattern should be confirmed by other technical analysis tools.
- False Signals: Like all trading patterns, the morning star can occasionally lead to false signals.
- Requires Patience: The formation of the morning star pattern can take time, requiring patience from the trader.
Comparing Morning Star Pattern with Evening Star Pattern
|Morning Star Pattern
|Evening Star Pattern
|Indicates bullish reversal
|Indicates bearish reversal
|Forms at the end of a downtrend
|Forms at the end of an uptrend
|Last candle is bullish and larger
|Last candle is bearish and larger
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.
Frequently Asked Questions 💡
What is a morning star pattern?
The morning star is a three-candle bullish reversal pattern that appears at the bottom of a downtrend.
How reliable is the morning star pattern?
While the morning star pattern can be a strong signal of a potential trend reversal, it should be used in conjunction with other technical analysis tools for confirmation.
What does the morning star pattern tell traders?
The morning star pattern indicates that the bears’ control over the market is weakening and the bulls are starting to take over, suggesting a potential upward trend.
How does the morning star pattern form?
It forms with a long bearish candle, followed by a small-bodied candle (or a doji) and then a long bullish candle.
Can the morning star pattern appear in all time frames?
Yes, the morning star pattern can appear in any time frame, making it useful for both short-term and long-term trading strategies.
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