What are Morning Star Candlestick Pattern ?
It is a reversal candlestick pattern which is bullish in nature and appears at the end of a down trend. It is a complex pattern made of three candlelines. The first candle is bearish in nature, the second is indecisive in nature and third candle is bullish in nature.
It is so named because just like the planet mercury, which is the star of early morning, appears just before the sun rise, this pattern appears just before price rise.
Morning Star Candlestick Pattern is formed by the combination of three candlesticks. The first one is a falling black candle, the second is a black or white confusion candlestick and the third is a reversal bullish white candlestick.
The market is in a down trend. The price opens at almost high of the day and as usual the sellers continue to sell. At the end of the session the price closes almost at the bottom for the time period. This results in the formation of bearish black candle, which is the first candle of the Morning Star Candlestick Pattern.
On the next day or next time period the price opens below the low of the real body of the previous bearish candlestick. Sellers are making new short trades. Those who are already short in the market are also adding to their position. But the smart money creeps in and starts accumulating shares from these ignorant sellers. As the demand increases the momentum of fall decreases. Accumulation is slow but firm. At the end of the session prices closes near the opening, either just below or just above the open. This results in a small body of the second candlestick.
Next day is the decision day. Bulls are aggressive. The price opens above the real body of the previous candlestick. Through out the session the buyers keep buying. Tremendous increase in the demand over the supply drives the prices high. As the new short sellers are all in loss, they also start to buy back to minimize their losses. Sensing the change in the trend, the old bears starts booking profits in their short positions. As the bulls continue to increase their long position, the price rise further and at the end of the session the price closes well above the open price resulting in a bullish tall white body of the third candlestick of this Morning star pattern.
Morning Star Candlestick Pattern is a major bullish reversal candlestick pattern. They occur at the bottom of a down trend.
Study the chart given below.
It is obvious that the buyers are taking over the control of the market. It signifies that the bottom reversal has occurred. The third candlestick confirms the bottom reversal.
The first one is a black candle, which signifies the ongoing down trend.
On the next day, though the stock opens below the low of the previous day's real body, the supply decreases or the demand increases, so that the momentum of the falling market decreases. The stock closes near the opening, either above or below the opening, but below the close of the previous day. This creates a black or white candle with a small real body.
On the third day, with the bulls dominating, the market opens above the real body of the second day, rises up and closes high to create a long white candle.
This is a clear indication of the bullish reversal of the market.
Sometime the gap down opening of the second candlestick or the gap up opening of the third candlestick may not be obvious.
The significance of this Morning Star Candlestick Pattern increases if the third day's opening is below a support area and the close is above the support area. If the third candle is a white marubozu or with a shaven head or shaven bottom, it speaks of the more bullishness of the market. Its importance is even more if it is accompanied by increased volume.
If you are holding a short position, Morning Star Pattern should alert you to take action the next day. One can cover her short position above the high of the third day's white candle.
A long trade can be entered above the high of the third day's white candle. Place a sell on stop order below the low of the pattern to limit your loss, in case the down trend continues to go down.
Sometime first day's real body can be white, if it is a very small body. First day can also be a doji.
Morning Star Candlestick Pattern may occur along a down trend without a reversal. It only exhibits a minor profit booking by bears.
Counter part of this pattern in a candle chart is Evening Star.
The second day candle may be a doji, which results in Morning Doji Star.
Click on the links below to read about them.
There are many more complex candlestick patterns used in stock analysis. Some of them are listed below. You may click on the name of each pattern listed below to learn and understand more about them.
Dark cloud cover is a bearish reversal candlesticks pattern. They occur at the top of an up trend.
Piercing Pattern is a bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
Bullish Engulfing Pattern is a major bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
Bearish Engulfing Pattern is a major bearish reversal candlesticks pattern. They occur at the top of an up trend.
Evening Star is a bearish reversal candlesticks pattern. They occur at the top of an up trend.
Morning Doji Star is a bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
Evening Doji Star is a bearish reversal candlesticks pattern. They occur at the top of an up trend.
Three White Soldiers is a candlesticks pattern formed by a group of three white candles, which shows the strength of the advancing market.
Three Black Crows is a candlesticks pattern formed by a group of three black candles, which shows the strength of the declining market.
Harami is a candlesticks pattern, which shows the indecision of the market. In Japanese language, it means, pregnant. It is made of two candles, one containing the other.
Gaps are continuation chart pattern, formed by an unfilled space between two trading session. Gaps are referred as Tasuki, meaning window in candlestick charting.
Island Formation is a reversal chart pattern, formed by price action in a group of multiple time period, which is separated from rest of the price action by gaps. It is very reliable with 80% probability.
Abandoned Baby is a reversal chart pattern, formed by price action in a single time period, which is separated from rest of the price action by gaps. It is very reliable with 80% probability.