Morning Star Candlestick Pattern Trading Strategy and Backtest Definition & Meaning

morning star candle

The Morning Star candlestick is a three-candle pattern that signals a reversal in the market and can be used when trading forex or any other market. Correctly spotting reversals is crucial when trading financial markets because it allows traders to enter at attractive levels at the very start of a possible trend reversal. In terms of identifying a valid Morning Star pattern on the price chart, it’s important that the structure be analyzed in the context of the current price action.

  • They consist of the first candle being bearish and large bodied, the second candle being a doji, usually tiny with a two distinct wicks and the 3rd candle being…
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  • The Stochastic oscillator has two primary lines, the faster percent K line which is more sensitive, and the slower percent D line which is less sensitive.
  • This is what gives the Morning Star pattern the characteristics of being a bullish reversal signal.

In this part of the article, we wanted to show you a couple of trading strategies that make use of the morning star pattern. Now that we have confirmed the Morning Star pattern, we can turn to the trade entry. As per our rules, we would enter a long position immediately following the completion of the Morning Star pattern. As such the long entry would be triggered at the start of the following candle as shown on the price chart. Generally speaking, the stop loss for the Morning Star pattern should be set below the low of the central candle within the formation. This will usually be the lowest low within the structure, and as such provides an excellent area for placing the stop loss.

What Is The Morning Star Candlestick?

The Morning Star is a bullish reversal pattern that appears on the bottom of a downtrend. It often indicates the ending of a downtrend and the beginning of an uptrend. The morning star consists of three candlesticks with the middle candlestick forming a star.

  • Identifying the Morning Star on forex charts involves more than simply identifying the three main candles.
  • It is an effective spring for taking long positions in a range-bound market.
  • The important thing to note about the morning star is that the middle candle can be black or white (or red or green) as the buyers and sellers start to balance out over the session.
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  • That is to say that your exit order would then be triggered when the price breaches the low of the last three completed bars.
  • That is to say that the exit signal would occur when the price closes back below this centerline of the Bollinger band.

The Morning Star is a candlestick pattern that is comprised of three candles. A completed Morning Star formation indicates a new bullish sentiment in the market. It is considered a reversal pattern that calls for a price increase following a sustained downward trend. They are used by technical chart analysts as a signal to identify bullish reversals after a downward-trending price period. Traders are able to confirm the formation of a Morning Star pattern using indicator reading that might suggest that asset prices have become oversold. Both technical analysis and fundamental analysis are used by traders and investors in picking an investment as well as when to enter and exit the investment.

Morning Star Trading Strategy

For other static pages (such as the Russell 3000 Components list) all rows will be downloaded. Most data tables can be analyzed using “Views.” A View simply presents the symbols on the page with a different set of columns. Switch the View to “Weekly” to see symbols where the pattern will appear on a Weekly chart. If you’d like a primer on how to trade commodities in general, please see our introduction to commodity trading.

morning star candle

Price action traders use it as a signal to spot a buying opportunity in the market. In the right market condition, the pattern can give a strong signal for taking long positions or closing short positions. When combined with other tools, such as trendlines and support levels, the pattern can be used to formulate a trading strategy. In general, you shouldn’t use candlestick patterns like the morning star candle on their own without some sort of confirmation.

Best Swing Trading Strategies (Backtests & Trading Rules)

Since there are no guarantees in the forex market, traders should always adopt sound risk management while maintaining a positive risk to reward ratio. In order to protect ourselves in the case of an adverse price move, we will set a stop loss below the lowest low within the Morning Star structure. Since, the Morning Star pattern touches the centerline, our exit rule calls for closing out the trade upon the touch of the morning star candle upper Bollinger band. We can see towards the bottom of this chart there was a Forex Morning Star pattern. Another technique that some traders utilize for entering into a long position following the Morning Star pattern is to wait for a minor retracement of the third candle. The logic here is that the market should subside a bit following the Morning Star formation, providing a better entry for the long position.

morning star candle

More specifically, we’ll only enter a trade if the morning star is effectuated below the lower Bollinger Band. However, since the last candle of the pattern often is a strong bullish one, it means that we won’t get many trades if we require the whole pattern to be below the lower band. As such, the only requirement is that the middle candle is below the lower band.

One can enter the trade after the complete formation of the morning star. When the second candle is formed, then the market seems to be another bearish day as the candle gaps down. When the first candle of the morning star forms, this sentiment holds one. Price Data sourced from NSE feed, price updates are near real-time, unless indicated.

  • Please be aware of the risk’s involved in trading & seek independent advice, if necessary.
  • This is because the Morning Star pattern does not provide any clues as it relates to the extent of the price move that will follow.
  • It’s good to learn something even if you knew it before,Seriously some of you know all these patterns but don’t know how to use them.
  • This data is displayed on charts, allowing traders to visualize movements and entry and exit points.
  • However, the pattern may not be as strong if it forms in a downtrend since it would go against the price momentum.

However, Day 2 was a Doji, which is a candlestick signifying indecision. Bears were unable to continue the large decreases of the previous day; they were only able to close slightly lower than the open. Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams.

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It includes a column that indicates whether the same candle pattern is detected using weekly data. Candle patterns that appear on the Intraday page and the Weekly page are stronger indicators of the candlestick pattern. A morning star is best when it is backed up by volume and some other indicator like a support level. Otherwise, it is very easy to see morning stars forming whenever a small candle pops up in a downtrend. You can use the historic price action and analyze the structure and behaviour of the morning and evening star patterns on the Metatrader 5 trading platform, which you can access here.

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