How to Trade Morning Star Patterns

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. Watch our video on how to identify and trade morning star patterns.

What Is a Morning Star Pattern and How to Identify These 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. Watch our video above to learn more about how to trade this pattern.

Morning stars are a sign of good things to come. If you like bullish patterns, you can wish upon a morning star. Japanese candlesticks chart patterns come in many shapes and sizes.  Single candles such as doji candlesticks can give you information by itself.

When grouped together, candlesticks form patterns. These patterns help you to know when a stock is going to breakout or even break down. Candlesticks record the emotions of traders.

Long legged doji candlesticks show you that the bulls and the bears fought a hard battle with no resolution. By closing time they ended up right back where they started. Hence the importance of knowing candlesticks and their meanings (bookmark our penny stocks list and stock watch lists pages, which are updated daily).

Basics of Morning Star Patterns

morning star patterns

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.

So the 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’s a couple signs above the strength of the reversal.

First, the longer the candles the greater the reversal. Second, if there’s 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.

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Technicals of Morning Star Patterns

Morning star patterns are one of the smaller of the candlesticks patterns. They do present a pretty important reversal signal but can break down.

Patterns are always breaking down instead of doing what they signal. There’s a reason for that. That reason is patterns forming within patterns. Inverse head and shoulders patterns could have different implications on a morning star than head and shoulders patterns would.

Larger bearish patterns like rising wedge patterns can have an affect on the morning star candlesticks pattern. While you may see the morning star pattern form and want to go long, it may fail. Hence the importance of finding the larger patterns.

Patterns are an important part of trading. Traders are creatures of habit. They like to trade patterns. There’s no such thing as a 100% foolproof way to trade.

You can have a trade go against you but patterns can help to alleviate that. Of course that doesn’t mean you’re not going to play a pattern and have it go wrong. The more you study patterns, the better off you’ll be.

Confirmation

morning star patterns

Technical analysis can play an important role in morning star patterns. The moving average lines used on stock charts provide support and resistance.

They’re also tools traders use along with candlesticks to find those key levels. We all know by now that without candlesticks moving average lines wouldn’t mean anything. While this is true, they do end up providing some pretty nice help.

Moving average crossovers are good buy and sell signals. When price is flirting with moving average lines, whether above or below, pay close attention to that.

Any stock that moves away from this moving average lines will come back to them. Those are plays you can take advantage of when trading. Of course you need to be careful you don’t get caught in a trap.

Technical analysis is basically a way to gauge price movement. When coupled with candlestick patterns you have the tools needed to place winning trades. Take our candlestick reversals course.

How to Trade Morning Star Patterns

  • 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

Summary

Morning star patterns are bullish reversal patterns. This pattern is a good omen of things to come. As always look for the big patterns as well as technical indicators for confirmation this pattern will break out. 

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