Morning Star Pattern
By: Danelle
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Morning Star Japanese Candlestick Pattern
The Morning Star Japanese Candlestick is a strong three-candlestick formation that signals a major bottom. It is composed of a long black body, followed by a second white or black small real body, gapping lower to form a star. These two candlesticks define a basic star pattern. The third is a white candlestick that closes well into the first candle’s black real body. The third candlestick indicates that the market has turned bullish.
The Morning Star Pattern is a three candle pattern at the bottom of a downtrend. This is the bull reversal opposite of the Evening Star.
The body of the first candle is black, confirming the current downtrend.
The second candle is an indecisive formation. This is the "star" of the formation and the trading range should be small for the day. It could be black or white. White is a stronger indication.
The third candle is white and should close at least halfway up the black candle.
Rules to identify the Morning Star pattern:
- The downward trend has been fairly consistent for a period of time.
- The body of the first candle is black, continuing the current trend.
- The second candle is an indecision formation. The "Morning Star".
- The third white candle should close at least halfway up the first black candle.
Potential Signal Strengtheners:
- The longer the black candle and the white candle, first and third days, the stronger the reversal.
- The more indecision that the star day shows, the better chance that a reversal will occur.
- A Gap between the first day and the star day adds to the chance that a reversal is occurring.
- A gap before and after the star day is even more indicative of a reversal.
- The magnitude that the third day comes up into the black candle of the first day, indicates the strength of the reversal.
General Analysis and Investor Sentiment:
The market trend was on its way down. The stronger the downtrend, the more investor sentiment changes to fear of the end of the trend. The sellers start getting nervous and create a large sell-off day, closing their positions. The next day the buyers start buying at the low prices. Larger volume during these days shows that ownership of the trend has changed hands. The star day does not have a large trading range as buyers and sellers are swapping positions. The third day the bulls take complete control and bears start to lose confidence. The price moves back into the trading range of the first day and the bears give up giving the bulls full control.
Thats it for the Morning Star Japanese Candlestick Pattern. Keep learning and mastering Forex with us, here at PipsAngels.com.
