Morning Star
What Is a Morning Star?
A morning star is a visual pattern comprising of three candlesticks that are deciphered as bullish signs by technical analysts. A morning star forms following a downward trend and it demonstrates the start of a vertical trip. It is an indication of a reversal in the previous price trend. Traders watch for the formation of a morning star and afterward look for confirmation that a reversal is to be sure happening utilizing extra indicators.
What Does a Morning Star Tell You?
A morning star is a visual pattern, so there are no specific computations to perform. A morning star is a three-candle pattern with the low point on the subsequent candle. Be that as it may, the low point is just apparent after the close of the third candle.
A morning star is a three-candle pattern with the low point on the subsequent candle. Be that as it may, the low point is just apparent after the close of the third candle.
Other technical indicators can help predict assuming a morning star is shaping, for example, whether the price action is approaching a support zone or whether the relative strength indicator (RSI) is showing that the stock or commodity is oversold.
This is what a morning star pattern resembles:
The chart above has been rendered in black and white, yet red and green have become more normal visualizations for candlesticks. The important thing to note about the morning star is that the middle candle can be black or white (or red or green) as the purchasers and merchants start to balance out over the session.
An Example of How to Trade a Morning Star
Morning star patterns can be utilized as a visual sign for the start of a trend reversal from bearish to bullish, however they become more important when other technical indicators back them up as previously referenced. Another important factor is the volume that is adding to the pattern formation.
Generally, a trader needs to see volume expanding all through the three sessions making up the pattern, with the third day seeing the most volume. High volume on the third day is in many cases seen as a confirmation of the pattern (and a subsequent uptrend) paying little mind to different indicators. A trader will take up a bullish position in the stock/commodity/match/and so forth as the morning star forms in the third session and rides the uptrend until there are indications of another reversal.
The Difference Between a Morning Star and a Doji Morning Star
The morning star pattern arrives in a minor variation. At the point when the price action is basically flat in the middle candlestick, it forms a doji. This is a small candlestick with no huge wicks — similar to a + sign. The doji morning star shows the market hesitation more plainly than a morning star with a thicker middle candle.
The presence of a doji following a black candle will generally see a more aggressive volume spike and a correspondingly longer white candle due to additional traders having the option to plainly recognize a morning star-framing.
The Difference Between a Morning Star and an Evening Star
Something contrary to a morning star is, of course, an evening star. The evening star is a long white candle followed by a short black or white one and afterward a long black one that goes down to some extent half the length of the white candle in the principal session. The evening star flags a reversal of an uptrend with the bulls giving way to the bears.
Limitations of Using the Morning Star Pattern
Exchanging simply on visual patterns can be a dangerous proposition. A morning star is best when it is backed up by volume and some other indicator like a support level. In any case, it is exceptionally simple to see morning stars framing at whatever point a small candle springs up in a downtrend.
Highlights
- The contrary pattern to a morning star is the evening star, which flags a reversal of an uptrend into a downtrend.
- The middle candle of the morning star catches a moment of market hesitation where the bears start to give approach to bulls. The third candle affirms the reversal and can mark a new uptrend.
- A morning star is a visual pattern comprised of a tall black candlestick, a smaller black or white candlestick with a short body and long wicks, and a third tall white candlestick.
