Morning Star Patterns

How to Trade a Morning Star Pattern

7 min read

Morning star patterns are bullish reversal patterns. They are a three-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 the third candle to complete the reversal.

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.

Morning Star Pattern

Basics

The first candlestick is a large, bearish candlestick. The second candle has a small real body, a doji. This shows indecision. Lastly, the third candle is bullish.

While the third candle should be a large bullish candlestick, 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 on the first day. The second day is indecision because the bulls and bears battled, and now one took control.

On the third day, the bulls put the smackdown 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 about the first candle, the greater the bullish takeover.

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Morning Star Pattern Trading Strategy

  • 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 the price breaks above the 3rd candlestick
  • Place stop below the base of the 3rd candle
  • Some traders take a short position once the price falls below 3rd candle
  • Then, place the stop above the 3rd candle

Morning Star Pattern Example

Morning Star Pattern Example

This is an example of a morning star pattern on a daily chart of $C. The first candlestick was a bearish high-wave candlestick. Next, there was a green bullish hammer. There was a gap up, which formed the third bullish candlestick. 

Traders would enter a long position when the price broke above the third bullish candlestick and placed their stop loss below the base of the hammer. This created a nice cup and handle breakout that turned into a rising wedge.

Gap Up Example

Morning Star Gap Up

This is an example of a morning star gap-up pattern on the daily chart of $FDX. The first candle was a bearish spinning top. Next, there was a green hammer that signaled the reversal. The last candle was a strong, bullish candlestick. Most traders would have gone long once the price broke above the bullish candlestick, but the gap-up happened quickly. 

Gap-up patterns can be very profitable to trend if you catch them beforehand. Since this happened on a daily chart, there was probably positive news during the premarket. If you caught this pattern during the power hour of the previous session, once this pattern formed, you could have ridden the breakout. This is why scanning for patterns and identifying them before entering into trades is important.

Breakout Example

Pattern Failure

This is an example of a morning star pattern on the daily chart of $FDX. The pattern formed perfectly. However, it failed at first—a long, bearish candlestick formed at the base of the downtrend. The second candle was a hammer that signaled the reversal. The third candlestick was bullish. This should have signaled the completion of the bullish reversal, but there was a fake-out.

The breakout candle became a shooting star and a brief evening star pattern. This would have faked out bullish traders. Next, it became a short-term cup and handle pattern and broke out. The cup and handle formed inside of an inverse head and shoulders.

Failure Example

Morning Star Pattern Failure

The picture above is a daily chart of $NKE. This is an example of a morning star pattern that was a false breakout that ended up failing. It wasn’t a very clean looking morning star, however, not all patterns will be. In this example you’ll see that the fourth candle was bullish as well as the fifth candle.

As price broke out it form a v pattern that temporarily broke out but hit angular resistance of the falling wedge pattern. The morning star pattern took place inside of a bear flag. So, while the morning star was a temporary bullish breakout, it wasn’t strong enough and price ended up continuing the bearish trend.

Final Thoughts: Morning Star Patterns

Morning Star patterns are a very popular pattern that are found on all time frames. The key is to be aware of the third bullish candlestick and watching if the fourth candlestick breaks out. Sometimes there will be a quick fakeout or pullback that turns into a bull flag breakout.

This pattern is especially strong when found at the base of a prolonged downtrend. If it’s found at the top of an uptrend, the trend may continue bullish. This is why paying attention to the patterns found within the overall pattern is important.

Frequently Asked Questions

A morning star pattern is a bullish reversal pattern. It occurs at the base of a downtrend and signals a new uptrend may form. If this pattern forms at the top of an uptrend, it may signal a reversal to the downside if it's at previous resistance levels.

The morning star formation is the inverse of the evening star pattern. This indicates that a reversal of the bearish trend is about to take place. It's important to see what happens with the fourth candlestick to see if it will hold above the highs of the third candlestick. It might be good confirmation that price will create a bullish trend if it doesn't.

The way to identify morning star patterns is through three candlesticks. The first will be bearish. Next, the second candle will be an indecision candle like a doji or spinning top. The last candle will be bullish.

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