The Morning Star candlestick pattern is a bullish reversal pattern that indicates a potential change in the market trend from bearish to bullish. It usually forms at the end of a downtrend and signals the dawn of a new upward movement, hence the name “Morning Star” which symbolizes the beginning of a new day.
What does the pattern look like?
The Morning Star pattern consists of three candles:
First candle: This is a long bearish candle (red) that continues the prevailing downtrend. It has a long body showing a strong downward movement.
Second candle: The second candle can be either bullish (green) or bearish (red) and is usually a smaller candle or even a doji (where the open and close prices are almost identical). This candle will often gap down from the close of the first candle, meaning it opens at a lower price than the close of the previous candle.
Third candle: This is a long bullish candle (green) that often breaks out from the close of the second candle. It should close at least halfway inside the body of the first candle, and the closer it is to the body of the first candle, the stronger the reversal signal.
pattern psychology
Understanding the psychology behind the Morning Star pattern gives more insight into its significance:
Continuation of the bearish sentiment: The first long red candle reflects the continuation of the recent downtrend. Bears are in control, pushing prices lower.
Market Indecision: The appearance of a second smaller candle or Doji candle indicates a pause in the downtrend. This indicates that selling pressure is weakening, and that there is uncertainty or indecision in the market. Both bears and bulls are evaluating their positions.
Change in Sentiment: The third candle is where sentiment changes. The price gaps up at the open, indicating that bulls are starting to step in aggressively. As the third candle continues to push higher, it confirms that the bulls have taken control, and a potential trend reversal is underway.
Confirmation: While the Morning Star pattern is a strong bullish reversal signal, traders often look for additional confirmation. This could be in the form of another bullish candle following the Morning Star or other technical indicators showing bullish momentum.
In conclusion, the Morning Star candlestick pattern is a powerful tool for traders to identify potential bullish reversals at the end of a downtrend. It provides a visual representation of the shift in market sentiment. However, as with all candlestick patterns, it is essential to use the Morning Star in conjunction with other technical analysis tools and techniques to make informed trading decisions.
Don't forget to support us so we can continue publishing 🥰 ☺️ 🙏.
