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Morning Star Candlestick: Definition, Structure, Trading, Benefits, and Limitations          

Morning Star Candlestick: Definition, Structure, Trading, Benefits, and Limitations

Morning Star Candlestick: Definition, Structure, Trading, Benefits, and Limitations
By Arjun Arjun Remesh | Reviewed by Shivam Shivam Gaba | Updated on May 14, 2024

The Morning Star is a reversal candlestick pattern that signals a potential trend change from downside to upside movement. The morning star candlestick forms at the bottom of a stock’s price decline and suggests a downtrend may be nearing its end.  The pattern consists of three candles – it begins with a long red candle that continues the prevailing bearish trend. This is followed by a small bodied candle, either red or green, reflecting a pause in the downtrend momentum. The Morning Star is completed by a long green candle that gaps above the middle candle, demonstrating renewed buying pressure. 

This three candle sequence shows that selling pressure is abating as bulls regain control of the market. The middle candle represents indecision emerging after the selloff, while the strong green candle confirms improved optimism among investors. When identified, it provides technical traders with a potential entry point to join a new emerging uptrend.

The validity of any reversal signal depends on confirming factors like volume and momentum indicators. But by keeping an eye out for this formation at stock bottoms, investors can exploit the trend change opportunities it sometimes foreshadows.

What is a Morning Star Candlestick?

The Morning Star is a bullish candlestick reversal pattern that appears at the bottom of a downtrend in a stock’s price. Morning Star is composed of three candles. The first candle is a long red candle that continues the prior downtrend. The second candle gaps down from the first candle’s low and has a small real body, forming a doji or spinning top that indicates market indecision. The third candle gaps up from the second candle’s low and closes above the midpoint of the first candle’s body. 

Morning Star Candlestick
Morning Star Candlestick: Definition, Structure, Trading, Benefits, and Limitations 7

The small middle candle shows that the bears are losing control and the bulls are gaining strength. The gap up and higher close of the third candle confirms the transition of control from sellers to buyers. The Morning Star pattern, a type of Triple Candlestick Pattern, indicates the downtrend is ending and an uptrend is beginning. It signals the potential for a bullish breakout.

Traders will go long when the third candle closes above the midpoint of the first candle’s body. The Morning Star is considered a strong reversal signal that could lead to several days of upside movement. Targets are set at the recent swing high and the 161.8% Fibonacci extension of the pattern. Stops are placed below the low of the second candle. Overall, recognizing the Triple Candlestick Pattern can significantly enhance trading decisions.

How useful is Morning Star Candlestick?

The Morning Star candlestick is useful as it acts as an early warning of trend reversals, confirmatory signal of support levels, gauge of shifting market psychology, and component in systematic trading strategies. The main utility of the Morning Star pattern is highlighting situations where an existing stock downtrend could be ending and an uptrend beginning. The pattern provides visual representation on the chart of how bearish sentiment is waning after a decline and bulls are asserting control. Traders use the Morning Star to anticipate a potential trend reversal and upside breakout.

For traders looking to enter long positions, the Morning Star provides an earlier signal to go long compared to other indicators that sometimes lag price action. The pattern is considered a bullish signal that could precede further upside. Traders who buy after the Morning Star pattern forms benefit from being early into a new uptrend. The Morning Star also helps with placing effective stop loss orders. Traders going long after a Morning Star could place stop losses below the low of the second candle to limit downside risk. This allows for defined risk on the trade while capitalising on the upside implied by the pattern.

The small bodied second candle of the Morning Star tapping below the prior long red candle shows there is support and buying interest at those levels. This confirmation of support makes traders more comfortable going long and seeing further upside follow through. The support holds after being tested by the preceding downtrend.

For traders already in long positions from higher levels, the Morning Star provides a signal to add to the longs if they had been stopped out on the preceding decline. Since the pattern indicates the downtrend might be reversing, it gives traders confidence to get back in and augment existing longs. Adding at the support levels identified by the Morning Star improves the average entry price.

How Does the Morning Star Candlestick Pattern Structure?

The Morning Star pattern is composed of three distinctive candles that signal a potential trend reversal from bearish to bullish. First, it begins with a long red candle that continues the established downtrend, reflecting the bears’ control. Next, a small-bodied candle appears, either red or green, that gaps below the previous candle. This middle candle shows indecision in the market about the direction of the trend. Its small real body indicates little price movement from open to close.

How Does the Morning Star Candlestick Pattern Structure
Morning Star Candlestick: Definition, Structure, Trading, Benefits, and Limitations 8

Finally, a long green candle emerges that gaps above the middle candle and closes near its high point. This third candle shows the bulls have regained control and a reversal sometimes is underway. For a valid Morning Star, the green candle should close at least halfway into the body of the first red candle to confirm the reversal. The outline of these three candles on the chart creates a visualisation of a “Morning Star” shape, hence the name of the pattern. The small middle candle forms the star portion of the pattern.  See the image below.

For the Morning Star pattern to be considered valid, it should first form after a significant downtrend lasting at least three to five red candles. The longer the preceding downtrend, the more powerful the reversal signal. The real bodies of the first and third candles should be large and long, while the middle candle has a small real body that gaps below the first. Additionally, the closing price of the third green candle should move well into the body of the first red candle, closing halfway or more across the body to demonstrate the bulls have overwhelmed the bears.

The third candle should show an increase in volume compared to the second candle, reflecting heightened buying pressure that confirms commitment to the reversal.  Furthermore, the pattern is only valid if it occurs within an overall downtrend, as it signals a trend reversal. Gaps should form between the bodies of the first and second candle, as well as the second and third, to reinforce the change in momentum. These gaps should stand out clearly against recent price action. That diminishes the power of the pattern if they are very small. Finally, conservative traders sometimes wait for confirmation from the next 1-2 candles before acting, with continuation of the new uptrend via white (hollow) bodies validating the Morning Star signal.

The psychology behind the shift in market momentum that creates the Morning Star pattern is linked to the transition between bearish and bullish traders. The long red candle of the first candle shows bears are confident and selling aggressively, driving prices lower. The small middle candle shows a slowdown in bearish momentum and indicates bulls are starting to provide support and put in bids under the market. Bulls gain hope when bears are unable to push prices substantially lower. Finally, the strong green candle shows renewed optimism and demonstrates the bulls have overwhelmed bearish sentiment. The gaps represent a market shift as bears stop selling and aggressive buyers emerge. The surge in buying volume propels the uptrend reversal.

How Many Days Does a Morning Star Pattern Take to Develop?

The Morning Star candlestick pattern takes a minimum of 3 trading days to fully form and complete. This bullish three-candle reversal pattern cannot develop in less than 3 days, as it requires 3 separate trading sessions to create the pattern structure. The structure of the Morning Star consists of 3 candlesticks, a long red bearish candle, a small-bodied star candle (red or green) and a long green bullish candle. It takes one trading day to create each of these 3 candlesticks. Therefore, the Morning Star pattern requires a bare minimum of 3 days to fully emerge and signal a potential trend reversal.  The first long red candle forms on Day 1 and indicates the bears are in control and driving prices lower. On Day 2, the small-bodied star candle forms, showing indecision and a loss of downward momentum. Finally, on Day 3 the long green bullish candle forms, confirming the reversal and showing the bulls have taken over control of the market.

Particular traders wait for confirmation before acting on the signal, in which case a 4th trading day is required to further validate the pattern. Ideal confirmation comes when the price pushes higher on Day 4, continuing the new uptrend indicated by the Morning Star.It is not possible for a Morning Star pattern to complete in less than 3 trading sessions, because each candlestick represents one unit of time – a single day in the market. The visual three-candle formation simply cannot emerge in fewer than 3 days.  Traders cannot identify a Morning Star signal until the market has closed on the 3rd trading day, when the pattern has fully formed across three separate sessions. The small star candle in the middle is essential to the psychology behind the pattern, representing a pause in the downtrend. This key candle only forms on Day 2 of the structure. 

Additionally, the strong green bullish candle on Day 3 must gap above the middle candle to show conviction behind the reversal. Without the 3rd trading day to complete the pattern, traders could not properly interpret the signal or confidently act on it.

When do Morning Star Candlestick Patterns occur?

Morning Star candlestick patterns occur in the stock market when a large red candle is followed by a small candle whose body gaps lower, and then a large green candle, signalling a potential reversal of a downtrend. The Morning Star candlestick pattern potentially occurs at any time, but is most significant when it appears after an extended downtrend. This bullish three-candle reversal pattern is best positioned to signal the end of a downward trend when it forms following a series of red bearish candles.

Ideally, the Morning Star will emerge after the market has experienced a pronounced decline over the previous 5-10 trading sessions or more. The more established the prior downtrend, the higher the probability the Morning Star represents a major trend reversal. In addition, the pattern tends to form near key support levels that have held as floors for the stock or index in the past. The Morning Star shows that even after breaking to new lows, buyers emerge when prices reach significant support. This provides another indication the downtrend is ready to reverse course. The pattern also frequently appears following oversold conditions in momentum oscillators like RSI or Stochastics.

Seeing oversold readings on these indicators combined with the Morning Star reversal increases confidence that an upswing is ahead. Morning Star patterns occur mid-downtrend as well, not only at extremes. The key is that there is an established downtrend, so the reversal represents a substantial change in market psychology. It tends to be a weaker signal when the pattern forms unexpectedly during an uptrend. Since the market spends more time rising than falling over the long run, Morning Stars are typically more common near market bottoms and downtrend reversals. The conditions of an extended decline and oversold momentum best align with the psychology of what the pattern represents.

What Are the Criteria to Recognize the Morning Star Candlestick Pattern in Technical Analysis?

There are eight specific criteria that traders look for in order to properly identify the Morning Star formation.

1. Preceding Downtrend

  • There should be a clear downtrend leading into the potential Morning Star, usually lasting at least 5-10 sessions or more.
  • The greater the extent of the preceding downtrend, the more likely the pattern marks a major reversal.

2. Three Candle Formation

The pattern consists of three consecutive candlesticks in the sequence as stated below.

  •  A long red bearish candle continuing the downtrend.
  •  A short-bodied or small range candlestick (red or green).
  •  A long green bullish candle that closes near its high.

3. Gapping Pattern 

  • There should be a gap down between the bodies of the 1st and 2nd candlestick. 
  • There should also be a gap up between the 2nd and 3rd candlestick.
  • These gaps between candles represent indecision and a shift in market momentum.

4. Location of Small Middle Candle

  • The small 2nd candle should occur below the middle of the 1st candle’s body.
  • That diminishes the reversal signal if it forms too centrally.

5. Closing Price of Third Candle

  • The 3rd green candle should close at least halfway into the body of the 1st red candle.
  • The higher it closes relative to the 1st candle, the stronger the reversal.

6. Trading Volume 

  • Volume on the 3rd green candle should expand to confirm the reversal. 
  • Volume on the 2nd candle is usually muted as the market pauses.

7. Context of the Formation

  • The pattern should form near a key support level or after oversold conditions.
  • This increases the chance the reversal will hold.

8. Confirmation

  • Traders often wait for confirmation from the candle after the Morning Star to validate the reversal.
  • A higher close or further upside follow through indicates confirmation.

Only candlestick patterns that meet all these criteria are able to be considered valid Morning Star signals for trading the reversal. These guidelines allow traders to distinguish true Morning Stars from random three-candle formations. Technical Analysis is essential for accurately identifying these patterns. By mastering Technical Analysis, traders can better predict market movements and make informed trading decisions.

How accurate are Morning Star Candlestick Patterns?

The Morning Star formation is considered a fairly reliable reversal signal, especially when adhering strictly to identification criteria, as it predicts a change in sentiment and trend direction about 60-75% of the time based on historical backtesting across various markets.

Can you improve the Morning Star Candlestick accuracy?

Yes, the accuracy of the Morning Star candlestick pattern is improved through the use of proper confirmation techniques and combining it with other technical analysis tools. The performance of the standard Morning Star formation increases substantially when a confirmation candle is required after the pattern completes. Waiting for the fourth candle to continue rising after the Morning Star, with a higher high and higher low, provides validation of the reversal.

Additionally, applying other indicators like volume, momentum oscillators, or trendlines to confirm oversold conditions and increase odds of a bottom enhances the pattern’s accuracy. Using the Morning Star in conjunction with other candlestick patterns also boosts performance. Other Bottoming patterns like Bullish Engulfing or Piercing Lines appearing with the Morning Star offer verification. 

What is the success rate of Morning Star Candlestick Patterns?

The Morning Star has an estimated success rate between 50-60% based on historical data and backtesting. This means that in about half to three-fifths of instances when a Morning Star pattern forms on a stock chart, the underlying equity does reverse from a downtrend to an uptrend. Of course, proper confirmation through volume and other technical indicators is still required. While not the most accurate reversal pattern, traders often look for the Morning Star formation to signal potential turning points, especially after extended bearish moves. 

How Should Traders React to a Morning Star Candlestick?

Traders should view the morning star candlestick pattern as a potential reversal signal and prepare to enter bullish positions if confirmation occurs on the next trading day. The first thing traders will do is check the broader context when a Morning Star occurs. Factors like where the pattern occurs relative to prior support and resistance levels, the prevailing market environment, volume, and other technical indicators should be analysed to gauge the robustness of the pattern. A Morning Star reversing a downtrend at a critical support level in an uptrending market with rising volume has a much higher chance of follow-through than a Morning Star that emerges randomly in the middle of a range.

Next, traders will look for confirmation of the reversal before placing trades. The most common method is to wait for the next 1-2 candles after the pattern to confirm the uptrend continuation. It adds greater certainty if the prices rise with expanding volume in the candles following the Morning Star. Traders sometimes also wait for an upside breakout above the high of the third candle. Other confirming signals like bullish crosses of short and long-term moving averages also improve odds.

Traders are able to then look to enter long positions based on sound risk management rules if follow-through occurs. Initial stop losses are logically placed below the low of the Morning Star’s third candle. Profit targets are able to be set using projected resistance levels, previous swing highs, or using a risk/reward ratio like 1:2 or 1:3. 

However, traders should not force a long trade if the upside breakout does not occur shortly after the Morning Star. The pattern sometimes is invalidated quickly if the prices start to trend lower following the Morning Star. Traders will then revert to watching for bearish setups and ignore the failed bullish signal.

How to Trade the Morning Star Candlestick Pattern?

Go long as the morning star pattern suggests a possible upward reversal when a downtrend results in a lengthy red candle, a small-bodied candle that gaps down from the preceding one, and a powerful white candle that closes above the midpoint of the initial red candle. There are five key steps to trading this pattern.

  1. Identify the Morning Star
  • Look for a three-candle sequence with a long red candle, followed by a small-bodied candle, and completed by a long green candle that closes above the midpoint of the first red candle. 
  • The middle “star” candle gaps down from the body of the first candle and represents indecision between buyers and sellers after a downtrend.
  • The third green candle shows a resumption of buying pressure and closes well into the body of the first red candle.
  1. Verify Context and Robustness
  • Check that the pattern emerged from a prior downtrend and is near support levels. This adds more power to the reversal signal.
  • Analyse volume. Increasing volume on the green third candle adds conviction. Low volume raises warning signs.
  • Factor in other technical indicators like moving average crossovers to gauge the pattern’s robustness.
  1. Wait for Confirmation 
  • Before trading, wait for confirmation that buyers are in control. Ideally within 1-2 candles.
  • Watch for an upside breakout above the high of the Morning Star’s third candle. Expanding volume on the breakout adds confidence.
  • Bullish crosses of short-term and long-term moving averages also help confirm upside momentum.
  1. Enter Long Trades
  • Once breakout is confirmed, enter long positions with initial stops below the low of the third candle. 
  • Target potential resistance levels where sellers could emerge. A 1:2 or 1:3 risk/reward ratio is recommended.
  • Trail stops higher to lock in profits as the uptrend extends.
  1. Manage Risk
  •  Use sound position sizing. Risk only 1-2% of capital per trade.
  • Factor in volatility. Widen stops on more volatile stocks. 
  • Cut losses quickly if the breakout fails and price starts making new lows. Do not marry a position.
  • Stick to trading highly liquid stocks so exits are easier if needed.
  • Stay disciplined and objective when taking profits. Don’t get greedy chasing every last pip.

The Morning Star pattern is a powerful early indicator of trend reversals. By thoroughly analysing it in context, waiting for confirmation, and managing risk, traders try to capture upside breakouts from this bullish candlestick signal.

What Indicator is Best to Trade with Morning Star Candlestick Pattern?

The Moving Average Convergence Divergence (MACD) indicator is one of the best technical indicators to use in conjunction with the Morning Star candlestick pattern. The MACD measures momentum and helps confirm the start of an uptrend following a Morning Star signal. It gives traders added confidence that upside momentum is accelerating after the Morning Star pattern emerges when the MACD line crosses above the signal line and both lines start trending higher.

Traders will want to see this bullish MACD crossover shortly after the Morning Star, validating the reversal. The MACD also gives traders an entry signal when its lines make the bullish crossover. Checking for a MACD alignment with the Morning Star provides objective confirmation of the candlestick signal on the price chart. Using the two together improves the timing and accuracy of long trades triggered by the Morning Star reversal pattern.

Can you trade Morning Star Candlestick Pattern with Bollinger Bands?

Yes, the Morning Star candlestick pattern is effectively traded in combination with Bollinger Bands. The Bollinger Bands indicator plots bands above and below a price chart to gauge periods of high and low volatility. It signals the pattern sometimes has higher odds of success when a Morning Star forms near the lower Bollinger Band. The lower band acts as support, so the Morning Star reversal aligns with support from the indicator.

This shows bears are exhausted after pushing the price down to the lower band. As the pattern completes, the ensuing breakout is traded when the price moves above the upper Bollinger Band, signalling a resumption of the uptrend. Checking for the Morning Star reversal near support of the lower Bollinger Band and then waiting for a breakout above the upper band provides objective entry and exit signals. Using Bollinger Bands with the Morning Star pattern validates the candlestick signal, improving reversals trading strategies. The bands help traders identify optimal locations and confirmations for the Morning Star setup.

What are the benefits of the Morning Star Candlestick Pattern?

The benefits of recognizing and trading the morning star candlestick pattern are that it indicates potential trend reversal, it has high probability setup, has good risk/reward, provides clear areas for entry and exit and stop loss levels, works across time frames, works across all market types, is easy to identify, is common and occurs frequently, is able to automate signal for ease of use, works with trend confirmation, has high volume on green candle confirms, has defined targets according to price swings, works best in down or ranging markets, faster signal than double bottom pattern and is able to stack probabilities with other candles.

  1. Indicates Potential Trend Reversal

The primary benefit of the morning star is it signals a potential reversal in the prior downtrend. After a series of red candles take the price lower, the pattern emerges indicating the bears sometimes are exhausted and buyers are stepping back in. The long green third candle confirms improving sentiment and upside momentum.

  1. High Probability Setup

While no chart pattern leads to guaranteed profitable trades, the morning star is considered a reliable pattern that produces a higher probability setup. The sequence of candles indicates the market has shifted from selling to buying, making a trade in the direction of the expected new trend a higher probability opportunity.

  1. Good Risk/Reward

The morning star appears after a downtrend, meaning a trader will be able to identify an advantageous entry point to go long at or near the bottom of the recent selloff. This improves the risk/reward ratio of the trade, with the potential for the stock to turn higher from the lows. Stops would be placed below the low of the pattern to limit potential loss.

  1. Clear Entry, Exit and Stop Loss Levels

The candle sequence provides clear areas for entering a long position on a break above the top of the third candle. Stops would be placed below the low of the second candle. Profit targets are able to be calculated based on typical retracement levels or chart structure. This defined risk management is a key benefit of trading candlestick patterns.

  1. Works Across Time Frames

The morning star pattern is effective on all time frames, from intraday charts to weekly or monthly charts. This allows traders to use it in their preferred time frame for analysis. The pattern sometimes emerges after just a few hours or days of a downtrend on lower time frames or could take weeks or months on higher time frames.

  1. Works Across All Market Types

The morning star appears in every type of market including stocks, forex, commodities and indices. It provides a reliable reversal signal whether trading Apple stock or the EURUSD currency pair. Certain patterns only work in specific markets whereas the morning star is universal across all tradable markets.

  1. Easy to Identify

A benefit of candlestick patterns in general is they are very easy to identify visually on a price chart. Scanning for a long red candle followed by a doji or small candle gap down and then a strong green candle is simple. Charts allow traders to easily spot the morning star pattern as it emerges.

  1. Common and Occurs Frequently

The morning star is one of the more common candlestick patterns. It occurs fairly frequently at market turning points because it reflects the shift in supply/demand dynamics at reversals. Traders will regularly see morning star formations on charts across various markets and timeframes.

  1. Is Able to Automate Signal for Ease of Use

Traders using technical analysis software packages are able to set automated alerts for the morning star pattern. It is able to alert the trader to focus on that chart for a potential trade entry when the software detects the proper sequence of candles. This makes it easy to spot morning stars as they occur without manually screening charts.

  1. Works With Trend Confirmation

Combining the morning star with other forms of trend confirmation or supportive indicators improve its accuracy. For example, waiting for the price to break resistance or a downtrend line following the pattern provides trend confirmation. Or applying an oscillator like RSI that confirms oversold bounces add more validity to the reversal signal. Using the candlestick pattern with other analysis techniques improves performance.

  1. High Volume on Green Candle Confirms

A strong surge of trading volume on the third green candle adds confidence that a reversal is taking place. Heavy volume indicates increased enthusiasm among market participants and buyers regaining control. Light volume on the signal candle is less convincing that a real trend change is occurring.

  1. Defined Targets According to Price Swings

The measuring technique for price targets is clearly defined with the morning star pattern. Typical price objectives are able to be set at the size of the previous red candle’s range extrapolated higher from the high of the green candle. This sets reasonable upside targets based on the prior price swings.

  1. Works Best in Down or Ranging Markets

The morning star works best following a strong downtrend or period of sideways price consolidation. Reversals require a preceding move to reverse from. The morning star has the highest probability of success as a bottoming signal when the market is bottoming after a selloff.

  1. Faster Signal Than Double Bottom Pattern

Unlike a double bottom reversal pattern which requires two touches of support, the morning star forms in just three candles. This faster signal means getting long earlier in the new uptrend. Also, the morning star is favoured over double bottoms when support fails to hold the second time.

  1. Is Able to Stack Probabilities with Other Candles

The probabilities of a reversal improve when the morning star forms with other bullish candles. For example, seeing bullish engulfing or piercing patterns immediately after the signal candle provides additional confidence. Stacked probabilities with supporting candlesticks boosts the potency of the reversal signal.

The morning star pattern becomes a powerful component of any trader’s arsenal for exploiting turning points and market bottoms when combined with other forms of technical analysis for confirmation. This reliable formation allows traders to gain an edge in determining high-probability entries early in emerging uptrends.

What are the limitations of the Morning Star Candlestick Pattern?

The morning star candlestick pattern fails to produce the anticipated reversal if it forms in the absence of a well-defined prior trend, giving false signals in ranging markets, or results in only a minor counter-trend bounce within a strong existing trend.

  1. Pattern Sometimes Fails

Like any technical indicator, the morning star will sometimes fail and the anticipated up move does not materialise. The pattern is not 100% accurate so traders should employ prudent risk management. Using stop losses below the low of the pattern and limiting position size controls risk on failed signals.

  1. Prone to Giving False Signals

Sometimes a morning star appears, but it disappears right away. The up move off the lows stalls after just modest gains for a false signal. This illustrates why waiting for confirmation with a break of resistance or volume increase on the third candle is wise. False signals are reduced with additional confirmation techniques.

  1. Subject to Whipsaws in Ranging Markets 

During extended periods of sideways price action and congestion, the morning star is vulnerable to generating whipsaw trades. In choppy markets, the pattern sometimes triggers long trades that quickly reverse for small losses. This deplete trading capital over time if not carefully managed.

  1. Works Best in Strong Trends

The high probability setups come after a well-defined downtrend, not just short blips lower. Reversals have the greatest success coming off sizable, sustained declines. Beware of morning stars that form absent a pronounced, directional preceding trend.

  1. Pattern Sometimes Only Lead to Brief Bounce

In strong bearish trends, the morning star sometimes results in merely a brief corrective bounce before the prior downtrend resumes. Powerful bear markets rarely reverse on a single bottoming signal. Traders sometimes misinterpret the bounce as a full trend reversal.

  1. Does Not Provide Price Targets

The pattern itself does not indicate specific upside price targets other than retracement estimates. While it signals reversal potential, traders must utilise other techniques for calculating profit objectives such as horizontal support/resistance levels, moving averages, or Fibonacci levels.

  1. Signal Sometimes Come Too Late

Due to the three candle sequence, the morning star sometimes triggers just as the new uptrend is already underway. This results in entering a reversal late after much of the initial upside momentum has occurred. Traders could miss a significant part of the initial move higher.

  1. Stop Loss Placement Not Always Clear

There are differing opinions on where to place a protective stop when trading the morning star pattern. Particular traders like below the low of the second candle, others prefer below the first candle. This ambiguity makes setting stops a subjective decision by the trader.

  1. Pattern Precedes Continuation Moves

Sometimes the morning star shows up, but the market doesn’t reverse the trend—instead, it keeps rising following a little decline. The signal generates a losing short trade when positioned for a reversal that fails to materialise. 

  1. Difficult to Discern in Volatile Markets

In very volatile markets with large daily ranges, it becomes challenging to decipher the small real body candle that forms the second candle of the pattern. The succeeding green candle also has ambiguity regarding whether it shows true reversal potential or just routine volatility.

  1. Requires Market Context Analysis

Traders should incorporate analysis of overall market conditions when interpreting any candlestick signal to gauge the overall probabilities. For example, coming late in a confirmed bull cycle reduces reliability as opposed to early in a bear cycle.

  1. Time Stop Loss Hits Not Ideal

Since stops are placed below the low of the pattern, it means taking a loss just as the new uptrend is potentially starting. This discourages particular traders psychologically from taking the signal. The ability to withstand pain is required.

  1. Pattern Is Subjective

What qualifies the size of the candles required to officially constitute a morning star formation contains subjectivity. The range of the candles needed to qualify is debatable, making pattern identification less concrete.

  1. Short-Term Price Action More Unpredictable

On intraday time frames under one hour, candlestick signals become less reliable playbook setups and more indicative of very short-term momentum. Intraday noise makes candlestick patterns like the morning star more prone to failure.

  1. Length of Preceding Downtrend Unknown

The morning star provides no indication of how long or deep the preceding downtrend should be before having validity. This makes assessing pattern quality more ambiguous without clear prior trend guidelines.

  1. No Sense of Urgency to Enter Trade

Unlike piercing or engulfing candle reversal patterns, the morning star does not have a strong real body candle to instil urgency of further follow through. This results in a lack of conviction entering the reversal trade.

  1. Shadows Are Able to Obscure Candle Details

Very long upper or lower shadows on the first and third candles distort their body size and conceal whether a small real body actually formed on the middle candle as required. Too much “noise” around the real bodies reduces reliability.

  1. Difficult to Automate Pattern Detection

The nuances involved in qualifying candle sizes and sequences makes programming the morning star for automatic detection among charting platforms and algos challenging. Coding rules to properly identify legitimate signals is complex.

Using prudent position sizing, confirmation techniques, stop losses, and analysing market conditions help overcome the disadvantages for improved trading performance.

Is Morning Star Candlestick Profitable?

Yes, the morning star is generally considered a profitable pattern for traders to utilise, with certain caveats. Extensive backtesting of the morning star formation across markets has shown it to reliably identify trading opportunities in the direction of the new emerging trend. 

The Morning Star has shown success across markets like stocks, forex, commodities, and cryptocurrencies, making its signals broadly applicable regardless of the traded asset class. Traders are able to control the risk on individual trades by using good risk management techniques like appropriate stop loss placement and position sizing when trading the morning star pattern. Signals that occur within clearly defined existing downtrends tend to have the highest probability of producing gains on the expected reversal. Additional confirmation from indicators like bullish RSI divergences boosts the likelihood of profitable follow-through.

The pattern contains built-in entry, stop loss, and take profit levels which allows creating an objective trading plan. Strong upside momentum following the pattern through expanding volume and wide-range green candles improves the chances of sustained upside versus just a brief bounce. Using appropriate position sizing relative to account balance keeps risk small even on failed signals. Letting winners run by managing trades according to plan once entered, rather than interfering with stops or targets, is also essential for profitability from candlestick patterns like the Morning Star.

Is Morning Star Bearish?

No, the morning star is considered a bullish candlestick pattern, not a bearish pattern. The morning star is a three-candle bottoming pattern that signals a potential reversal higher after a downtrend. It is categorised as a bullish reversal pattern, not a bearish continuation pattern. The sequence of candles that form the morning star indicate a transition from selling pressure to buying pressure in the market.

The Morning Star appears after a downtrend rather than an uptrend, which is the prerequisite for bearish signals. Each candle making up the pattern also has bullish implications – the small middle candle shows indecision following the downtrend while the third long green candle reflects renewed buying pressure. The pattern triggers entry for long trades to capitalise on expected upside momentum, whereas bearish patterns prompt short trades anticipating further declines. Stop losses are placed below the pattern which would result in exiting long positions, not adding to shorts.

Price targets are calculated to the upside off the high of the pattern in line with bullish projections, while bearish patterns forecast downward targets. Finally, confirmation comes from a break above resistance aligning with bullish expectations, contrasting bearish confirmations which rely on downside breaks. Taken together, all these factors clearly contradict the Morning Star being a bearish pattern, instead firmly establishing it as a bullish three-candle reversal formation. 

What is the difference between a Morning Star and a Morning Star Doji Candlestick?

The key difference between a Morning Star and a Morning Star Doji candlestick pattern is that the middle candlestick is different. In a standard Morning Star pattern, the middle candlestick is a short red real body that gaps down from the previous long red candlestick. This shows continued selling pressure. In contrast, in a Morning Star Doji pattern, the middle candlestick has little to no real body and forms a Doji star.

This shows indecision and uncertainty in the market after a downtrend. While both candlestick patterns signal potential reversal points after downtrends, the Doji version represents more uncertainty and requires confirmation from follow-through buying for a true reversal. 

What is the difference between a Morning Star and an Evening Star Candlestick?

The Morning Star and Evening Star candlestick patterns are bullish and bearish reversal patterns respectively. The main difference between them is the order of the candlesticks. In a Morning Star, a long red candle is followed by a short red or Doji candle, which gaps down from the previous candle, and then a long green candle confirms the uptrend reversal.

In contrast, the Evening Star pattern starts with a long green uptrend candle, followed by a short red or Doji candle that gaps up, and it is completed by a long red candle confirming the downtrend reversal. So the order of the three candlesticks is reversed – the Morning Star turns from red to green while the Evening Star turns from green to red. The patterns look like mirror images and signal opposite reversals at potential market turning points.

Arjun Remesh

Head of Content

Arjun is a seasoned stock market content expert with over 7 years of experience in stock market, technical & fundamental analysis. Since 2020, he has been a key contributor to Strike platform. Arjun is an active stock market investor with his in-depth stock market analysis knowledge. Arjun is also an certified stock market researcher from Indiacharts, mentored by Rohit Srivastava.

Shivam Gaba

Reviewer of Content

Shivam is a stock market content expert with CFTe certification. He is been trading from last 8 years in indian stock market. He has a vast knowledge in technical analysis, financial market education, product management, risk assessment, derivatives trading & market Research. He won Zerodha 60-Day Challenge thrice in a row. He is being mentored by Rohit Srivastava, Indiacharts.

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