The cable has an extremely small body forming either a Spinning Top or Doji. The second candle has a small body with probably long wicks. The price gap between the opening price and closing price should be very little. The middle candlestick is the Morning Star and indicates the reversal of the existing trend.

If it has very high volume, then it may be a so-called volume blowout, meaning that the market is depleted of the last bullish strength, and will head down as a result. In that case, the last candle becomes a sort of confirmation that the new bearish trend has begun. The market gaps up, and more people turn bullish, wanting to get in in anticipation of the next uptrend. 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 bearish version of the Morning Star is the evening star and it signifies a potential turning point in a rising market . The same analysis applied to the Morning Star can be implemented with the evening star however, it will be the opposite direction. This candlestick pattern is also easy to identify as they happen frequently in the charts.

What is Morning star candlestick pattern?

A strong bullish candle appears on the third candle, eliminating the bearish price action of Day 2. In this article, we’re going to have a closer look at the Morning Star Candlestick Pattern. We’re going to look at its meaning, how to improve the profitability of the pattern, and also have a look at a few example trading strategies. The candlestick pattern appears after a downtrend and is one of several trend reversal patterns that exist. The third candlestick of the morning star candlestick formation has a long bullish candlestick body. This shows that the price is being pushed up and translates into a bullish reversal.

However, in fast-moving markets like forex, this can prove to be dangerous. In this situation, the trader might take a wrong entry at a much higher price level which would cause losses or very limited returns. A trader may observe a bullish gap up and it is easy to watch how the bulls pull the price of the security upwards. This is how they may often erase the losses which may have occurred on day 1 of the trade. They may, however, also rely on other indicators to make sure that a morning star pattern is indeed forming. This pattern is formed by three candles and is considered as an indication for a possible trend reversal in the market. One thing that could be interesting to test, is to compare the volume of the middle candle to the other bars.

Forex, Gold & Silver:

For a best result, always confirm the chart patterns with the trading volume other technical indicators like therelative strength index. The evening star is another similar technical indicator but signals bearish reversal momentum.

Targets can be placed at previous levels of resistance or previous area of consolidation. Stops can be placed below the recent swing low, as a break of this level would invalidate the reversal. Since there are no guarantees in the forex market, traders should always adopt sound risk management while maintaining a positive risk to reward ratio. How to trade using Evening Star Candlestick PatternThe entry can be placed at the open of the next candle after the morning star pattern has developed. Stoploss can be placed above the recent high and the initial target level can be set at key levels or recent areas of support/resistance. How to trade using Morning Star PatternThe entry can be placed at the open of the next candle after the morning star pattern has developed.

Disadvantages of Using the Morning Star Pattern

Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money. Day 3 begins with a bullish gap up, and bulls are able to press prices even further https://www.bigshotrading.info/ upward, often eliminating the losses seen on Day 1. If you are looking to trade forex online, you will need an account with a forex broker. If you are looking for some inspiration, please feel free to browse my best forex brokers.