A really powerful bullish candlestick pattern is the morning star. After a short-term downtrend, the morning star candlestick pattern can quickly reverse the price trend to the upside. It's a perfect signal to use for entering long positions or exiting short positions.
This candle pattern is the opposite of the bearish evening star candlestick. A combination of both candles can allow you to swing trade markets with ease, although you should always include other trading indicators before you make a decision to buy or sell.
This pattern analysis is part of a much larger training series that will teach you everything you need to know to successfully trade candlestick charts. Make sure you take a look at the complete guide here: Japanese Candlestick Chart Analysis.
Morning Star Candlestick Pattern
The morning star candlestick is a pattern that will often show up after a short-term downtrend in the price action. It can make a trend reversal and will send prices back up, so it's the perfect opportunity to open a long position.
You should never use the appearance of this pattern along to make a decision to buy or sell stock or cryptocurrency. Always combine it with other indicators and signals. I'll discuss trading tips and strategies later in this guide.
Take a look at the pattern illustration below to see how a morning star looks...
Morning Star Pattern Basics
There are a number of conditions that are needed to match a morning star pattern:
- Pattern has three candles.
- First candle is bearish, often a long body.
- Second candle is short, which can be bearish or bullish.
- Third candle is bullish and long.
- Third candle open gaps up from the close on candle #2.
- The third candle closes above the halfway point on the body of the first candle.
Sometimes the second candle in this pattern will be a doji candlestick, which can also be a trend reversal indicator. This candle can provide addition reassurance that the emotional analysis of this pattern is accurate, although a doji isn't required to make a good morning star.
Trader Emotional Analysis
This candlestick pattern tells you a lot of information about the emotional state of traders since you have three candles. Overall, this pattern will often mark a trend reversal from the downside to the upside.
The first candle is bearish, so sellers have firm control over the market and price action. This selling power and activity begins to taper off for the second candle. Bulls also begin to fight back here. The battle between the two sides causes price action to stall out briefly, with neither side able to make significant gains.
The gap up on the third candle and then a bull rally is a clear indication that buyers have regained control of the market. They're actively driving the prices higher, so the trend reversal has been completed. Additional upside is then likely.
How to Trade the Morning Star
Take a look at the example below to see the morning star pattern in action on a chart...
You can see that prices are trending down at the beginning of this chart. Once the morning star appears, a rapid price reversal to the upside occurs.
Like other candlestick patterns, it's best to trade this one on longer timeframes like the 4 hour or daily candle charts. Short intervals will produce too many false signals that make it unreliable and more prone to errors. Always combine the pattern with other signals and indicators before making a buying or selling decision.
Support & Resistance Levels
The main indicators that you'll want to use along with the morning star candle pattern are support and resistance levels. These levels can be obtained in a number of different ways.
Supply and demand orders will often show you where support and resistance are likely to occur. Plot these lines on your chart and watch for the price action to reach one of these levels. When a support level is found and a morning star appears, that's the confirmation you want to see before you open a long position.
Overall, you'll want to use this pattern during bull markets or sideways price action. Try to avoid using it to open long positions during long-term price corrections, since you don't want to fight the long-term price trend. As the values move up and down between trend lines, you can easily swing trade securities by utilizing this candlestick pattern.