Usually, this would be below the ‘swing’ created by the pattern – if the market drops back below this level, your trade probably won’t return a profit. The typical method to trade a morning star is to open a buy position once you have confirmed that a bull run is actually underway. If you don’t confirm the move before trading, then there’s a chance the pattern could fail. Deepen your knowledge of technical analysis indicators and hone your skills as a trader.

The morning star candlestick pattern is a three-candlestick reversal pattern that indicates bullish signs to technical analysts. The first candlestick is a long bearish candlestick, followed by a small bullish or bearish candlestick, and finally, a long bullish candlestick. The evening star is a three-candlestick pattern that typically signals the end of an uptrend. The pattern consists of a small bearish candlestick followed by a large bullish candlestick and another small bearish candlestick. The evening star is considered a bearish reversal pattern and can be used to enter short positions or exit long positions. A morning star candlestick pattern may be seen in the chart above.

Technical Analysis

As mentioned above, the morning star candlestick pattern is eerily similar to the evening star. The morning star pattern's small real body represent a stalement between the bulls and bear. The bear are obviously in charge in a brisky descending market. Either way, the morning star pattern tells us the rally's prior power has slightly dissipated.

The larger the white and black candle, and the higher the white candle moves in relation to the black candle, the larger the potential reversal. The main difference between the morning star candlestick and evening star candlestick patterns is that the morning star is considered a bullish indicator, while the evening star is bearish. The morning star is a bullish candlestick candle morning star pattern which evolves over a three day period. The pattern is formed by combining 3 consecutive candlesticks. The evening star pattern is similar to the morning star pattern, but instead of two white candles, it consists of three black candles. In both cases, these patterns indicate a bullish reversal from an uptrend or a bearish reversal from a downward trend.

What is Morning star pattern?

One such technique could be to use a three bar low as a trailing stop after the price has moved in your favor by a certain amount. That is to say that your exit order would then be triggered when the price breaches the low of the last three completed bars. Although this is a viable entry method for trading the Morning Star pattern, it does come with some additional risks. The primary risk being that the minor retracement could lead to a further price decline, and thus there exists a higher chance of getting stopped out. Unlike the breakout entry mentioned above, this retracement entry does not require the market to provide additional confirmation of bullish momentum. Drilling down into the data, we find that the best average move 10 days after the breakout is a drop of 8.53% in a bear market, ranking 3rd for performance.

After three sessions, you’ll either see it is performing, or it doesn’t occur at all. Examples include the price action that acts as support or the relative strength indicator that reveals excessive stock sales. The Morning Star pattern can be seen as an indication that the bearish trend is over and a bullish trend will begin. It’s important to wait for confirmation of this signal by looking for other signs of bullish sentiment and indicators such as moving averages, MACD, and RSI to confirm. The morning star signifies that the money flow is reversing direction—from bearish to bullish. In other words, it means that investors are feeling more optimistic about the stock.