Hello friends, we all know that trading in financial markets
is exciting, but it's also important to balance this excitement with
discipline, knowledge, and detailed analysis. This is where Japanese candlestick patterns come into play as one of the technical tools we use in
financial analysis. These patterns help us predict future price movements. The
topic of this article will be the "Morning Star" pattern that we use
within candlestick analysis.
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| The Morning Star Candlestick Patterns |
Topic: Morning Star
Type: bullish
Trend direction: reversal
Opposite pattern: Evening Star
Why is it called the "Morning Star"?
This candlestick pattern is named "Morning Star"
due to its visual resemblance to a rising star in the bright hour of the
morning. Thus, the name Morning Star carries a symbolic meaning. The morning
star appears in the sky before sunrise, signaling the end of darkness and the
beginning of a new day. Similarly, the Morning Star candlestick pattern
signifies the end of a bearish market and the beginning of a bullish market in a
similar fashion. Here, the long bearish market represents darkness, while the
formed star candle is seen as a ray of hope for the beginning of an uptrend.
Formation of the Morning Star candlestick pattern
The Morning Star is a bullish reversal candlestick pattern
that signals the end of a bearish market and the beginning of a bullish market. It
consists of three candlesticks and develops as follows:
Large Bearish Candle: The first candlestick forms during a
bear market period, typically appearing as a large-bodied red (black) bearish
candle.
Star Candle: The second candlestick forms as a candle with a
small body and a long shadow. In some cases, there may be no shadow. This star
candle is usually green but can occasionally be red.
Large Bullish Candle: The market balance shifts, and the
third candlestick forms. This green (white) candle indicates that prices may
start moving upwards.
Once the Morning Star candlestick pattern is completed,
buyers become more eager to enter the market. Now, uncertainty or imbalance is
considered to have ended, and the inevitable trend reversal is anticipated.
Trading with Morning Star candlestick pattern
The Morning Star candlestick pattern is one of the
candlestick patterns in financial trading. We can trade using this pattern. The
emergence of the Morning Star pattern can signal the beginning of a bullish market
in both the forex and stock markets. However, it is more reliable when this
pattern appears at oversold levels and strong support levels. Nonetheless, it
is advisable to remain cautious, consider the risk, and confirm the signal to
make informed decisions.
Buy: After the close of the third candle (Green bullish
candle), we can enter a buy order.
Stop Loss: The stop loss order can be placed below the
lowest level of the Star candle.
Take Profit: When determining the take profit level,
risk-reward ratios, resistance levels, previous highs, and other technical
tools can be used.
Let's provide an example of trading with the Morning Star
candlestick formation on the daily chart of the New Zealand Dollar/US Dollar
currency pair:
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| Morning Star Candlestick Pattern on the NZD/USD. |
Allow me to highlight that: There's no guarantee of
always profiting in trading the Forex market. Of course, there are times when
we may incur losses. What's important is to consider the risk factor and be
patient. Remember that candlestick patterns, including the Morning Star
pattern, may not provide a 100% success rate. It should not be used alone but
confirmed with other analysis tools.