Morning Star Pattern

The Morning Star Candlestick Pattern: A Bullish Reversal Signal

Overview

The morning star candlestick pattern is a three-candle reversal pattern that signals a potential bullish reversal in a downtrend. It is considered a bullish pattern because it indicates that buyers are gaining strength and that the downtrend may be coming to an end.

Identifying the Morning Star Pattern

The morning star pattern consists of three candlesticks:

• Bearish Candle 1: A long, red candle indicating a strong downtrend.
• Doji Candle 2: A small, indecisive candle that opens and closes near the same level, indicating a pause in the downtrend.
• Bullish Candle 3: A long, green candle that closes above the open of the first candle, indicating a reversal in momentum.

Trading the Morning Star Pattern

Traders can use the morning star pattern to identify potential trading opportunities. A trader may enter a long position after the bullish candle 3 closes, with a stop-loss order placed below the low of candle 2. The target price would be the high of candle 1.