Morning Star
The morning star is a three-candle bullish reversal pattern. It consists of a large bearish candle, a small-bodied candle (star) that gaps down, and a large bullish candle that closes into the first candle's body.
Formation
- 1.First candle is a large bearish (red) candle
- 2.Second candle is small-bodied and gaps down
- 3.Third candle is a large bullish (green) candle
- 4.Third candle closes at least halfway into the first candle's body
Psychology
The first candle shows strong selling. The second candle shows indecision as selling momentum slows. The third candle shows buyers taking control and reversing the move, signaling the end of the downtrend.
Trading Tips
- ✓More reliable with gaps between candles
- ✓Third candle should close well into first candle's body
- ✓Doji as the star candle increases significance
- ✓Best after extended downtrends
Confirmation Signals
- →Gap down and then gap up around the star
- →High volume on the third candle
- →Third candle closes near its high
- →Following candles continue higher
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Common questions about this pattern
A valid morning star needs: a bearish first candle, a small-bodied second candle (ideally gapped down), and a bullish third candle that closes at least halfway into the first candle's body.
Gaps add reliability but aren't required. Many stocks (especially less liquid ones) rarely gap. The key is the three-candle structure and the third candle recovering into the first candle's body.
Enter after the third candle closes. Stop-loss goes below the low of the pattern (the star's low). Target previous resistance or use a risk/reward ratio like 2:1.