Morning star patterns are bullish reversal patterns. They are a 3 candlestick pattern that takes place near support levels. The first candle is a bearish candlestick. The second candle is a smaller doji or spinning top that closes below the first bearish candle. The third candlestick is a bullish candle that closes above the second. Look for a break and hold above third candle to complete reversal.
Table of Contents
What Are Morning Star Patterns?
A morning star pattern consists of three candlesticks that form near support levels. The 1st candle is bearish, the 2nd is a spinning top or doji, and the 3rd is a bullish candlestick. Typically, the 3rd candle forms a bullish reversal pattern.
These patterns are made up of three candlesticks. This pattern is a bullish reversal pattern. The formation of this pattern may not seem like it should be bullish. Morning stars are a sign of good things to come.
Morning star patterns are formed over three trading days. Consequently, while this may be a bullish pattern, the beginning of it is bearish. This is in keeping with the current trend.
First candlestick is a large bearish candlestick. The second candle is a candle with a small real body, also known as a doji. This shows indecision. Lastly, the third candle is bullish.
While the third candle should be a large bullish candlestick we know that chart patterns aren’t always perfect. The meaning is still the same though. The bulls are coming back in to take over.
In other words, the bears are fully in control the first day. The second day is an indecision day because the bulls and bears battled and now one took control.
Now the third day the bulls put the smack down on the bears. They win the battle and a new direction is made. There are a couple of signs above the strength of the reversal.
First, the longer the candles the greater the reversal.
Second, if there is a gap between the first and second day or a gap on either side of the middle candle, the possibility of reversal is even higher.
Third, the higher the third candle is in relation to the first candle, the greater the bullish takeover.
How to Trade Morning Star Patterns
- Watch for 1st falling bearish candlestick to form
- Next, watch for 2nd smaller spinning top or doji candlestick to form
- Then, watch for 3rd bullish candlestick to break above 2nd
- Traders take a long position once price breaks above the 3rd candlestick
- Place stop below the base of the 3rd candle
- Some traders take a short position once price falls below 3rd candle
- Then place stop above the 3rd candle
