How to Trade Morning Star and Evening Star Patterns

📌Japanese candlestick charts were developed in the 17th-18th centuries by the Japanese rice traders. The morning star pattern is very simple to identify on the price chart if you are an intermediate https://www.bigshotrading.info/blog/best-futures-to-trade-how-to-pick-a-futures-contract-to-day-trade/ trader. The pattern gives us well-defined entries and good risk-reward ratios. Despite this, it is advisable to combine this pattern with some other trading tools to increase reliability.

• As is clearly evident, after a few bars of sluggish upward price movement following the completion of the Morning Star, the price moved higher quite sharply, surpassing an important swing high level.
• Harness past market data to forecast price direction and anticipate market moves.
• By using one or more of these sites, you can quickly and easily find stocks that may be about to make a move higher.
• If volume data is available, reliability is also enhanced if the volume on the first candlestick is below average and the volume on the third candlestick is above average.
• From a morning star pattern, traders should look to open long positions.
• When the Morning Star pattern forms it gives a signal as a reversal of the previous trend.

Since the Morning Star is a bullish reversal pattern, we will only seek long trade set ups within the strategy. The Doji Morning Star indicates a bullish reversal following a downward trend. As such, it appears at the end of a downtrend and suggests that sellers are losing momentum.

The Morning Star Candlestick Pattern

The Harami pattern is a 2-bar reversal candlestick patternThe 2nd bar is contained within the 1st one Statistics to… The evening star pattern was formed in April 2022 which brought a significant correction in the market. In addition to always using the Morning and Evening Star patterns in tandem with other analytical tools, traders should use proper risk management strategies. Always have a plan for managing trades, including stop-loss orders and profit-taking targets. The Morning Star pattern can be observed in the EUR/GBP chart below, where there is an established downtrend leading up to the formation of the reversal pattern. The Doji Morning Star Pattern is formed when a Doji, or a candlestick with a very small body, gaps below the previous candlestick and then rallies to close above that candlestick open.

The evening star signals a reversal of an uptrend with the bulls giving way to the bears. Significant volume during the formation of the morning star pattern adds weight to the potential reversal, reinforcing the reliability of the pattern. Therefore, analysing volume in conjunction with the morning star pattern increases its importance in technical analysis. When trading the Morning Star on forex markets, the price will very rarely gap like they do with stocks and so the three-candle pattern usually opens very close to the previous closing level. Without these confirmations, they argue it is too risky to trade alone on a morning star pattern. While there is no guarantee that using additional indicators will always lead to successful trades, many experienced investors believe it is the best way to avoid false signals and minimize losses.

Disadvantages of Using the Morning Star Pattern

In addition to divergences, you can also wait for the MACD signal line and the histogram bars to show momentum changes. As for our entry point, we’ll enter the trade after the confirmation candle. Some traders like to enter a trade immediately after the formation of the Doji Morning Star; however, it’s best to wait and check the RSI if it rises above 30 (or 50, for that matter). Think about car driving; once you learn how to drive a car, it does not matter which car you drive.

Information available on this website is solely for educational purpose only. The advice, suggestion and guidance provided through the blogs are based on the research and personal views of the experts. Keep in mind all these informations are for educational purposes only and are NOT financial morning star candle advice. The above chart is a weekly chart of Nifty which has both the pattern with its entry and stoploss points marked. The stop loss would be placed below the lowest low within the Morning Star structure as can be seen by the black dashed line drawn below the long entry point.

Candlestick Pattern – Morning star

Furthermore, you can place a stop-loss order at the lowest price level of the Doji Morning Star or at the lowest price level of the recent swing low. Finally, for take-profit, you can set it at the recent high or exit the trade when the RSI makes a bearish divergence (price making higher highs while the RSI makes higher lows). To be included in a Candlestick Pattern list, the stock must have traded today, with a current price between $2 and $10,000 and with a 20-day average volume greater than 10,000. That it is most likely the buyers are dominating as they are already fighting an uphill battle to overturn the sellers who are in control (because of the downtrend). The difference here is that the doji shows that the battle between the buyers and sellers is closer and no side could overpower the other.

• The morning star candlestick pattern is a bullish reversal signal that consists of three candles.
• A morning star is a three-candlestick pattern that indicates bullish signs to technical analysts.
• Referring to the far right of the price chart you can see when that event occurred, which would have taken us out of the position, resulting in a profitable trade.
• Then, we have the middle Doji morning star candlestick, which has a very small body and long upper wick.
• Its relatively large real body indicates that the bears are still in control of the market.
• And so, when the percent D line of the Stochastics indicator is in oversold territory, then that is usually a signal that prices are more likely to reverse to the upside.

The reason this occurs is that the buyers completely exhaust the sellers out at this swing point. This is why I always go through this visual explanation of who’s in control, what’s happening, what’s going on. But when it comes to the real world, it may not look like the textbook pattern. What happened in the second candle is interesting, because usually when you get a strong-bodied candle, chances are the mixed candle tend to continue to move.