Morning Star Doji

Traders often look for signs of indecision in the market where selling pressure goes down and leaves the market flat. This is where Doji candles can be seen as the market opens and closes at the same level or very close to the same level. The indecision makes way for a bullish move because the bulls see value at this level and prevent any more selling. When the bullish candle appears after the Doji, then there will be a bullish confirmation.

How to identify the Morning Star candlestick pattern?

A morning star pattern is a variation of the bullish engulfing pattern. But the second candlestick in this three-candle formation must be a low range candle, such as a spinning top or Doji. The pattern starts with a relatively big bearish candle. Then follows a small real-bodied second candle that is either a Doji or slightly bearish, and then a third candle that has a real body and pulls close to the past.

Identifying the morning star candlestick pattern on forex charts involves more than just identifying the three main candles. What is needed is a knowledge of previous price action and where the pattern appears within the existing trend.

• Establish an existing downtrend: The market has to be showing lower highs and lower lows.
• Large bearish candle: The big bearish candle appears because of a large selling pressure and a continuation of the existing downtrend. When this happens, traders should only be looking for short trades because there is no real evidence of a reversal yet.
• Small bullish/bearish candle: Usually, the second candle is small and it presents the first sign of a tired downtrend. Often, this candle gaps lower as it makes a lower low. It doesn’t matter if the candle is bullish or bearish as the important thing is that the market is still undecided.
• Large bullish candle: This reveals the first true sign of a new buying pressure. In markets that are not forex based, the candle gaps up from the close of the previous candle and shows the start of a new uptrend.
• Subsequent price action: After a reversal has been successfully attained, traders will notice higher highs and higher lows, but should have well-placed stops to manage the risk of a failed move.

What does the Morning Star pattern tell traders?

A morning star candlestick is a visual pattern, so it doesn’t need any specific calculations. The pattern forms after three sessions or it does not. But other technical indicators can assist in predicting if an interesting morning star is forming. Some interesting signal confluence can be whether the price action is close to a support zone or if the relative strength indicator (RSI) is showing that the commodity or stock is oversold.

The crucial thing to note in a morning star candlestick pattern is the middle candle can be white or black (or green or red) as the buyers and sellers begin to balance out over the session.

How to trade when you see the Morning Star pattern?

It is well know that the morning star is a reversal pattern that mainly indicates that bulls are taking over the trend and bears are losing the grip. Most beginners usually trade the morning star pattern stand-alone. But that is not recommended as it is not reliable enough. It is advisable to pair the pattern with other reliable indicators, support resistance levels, or trend lines to have profitable trades.

• Confirm the downtrend on the trading timeframe: It is very important to confirm because if there is no downtrend, there will be no point in trading the morning star pattern. You can confirm it on a higher timeframe or on your trading timeframe.
• Find out the morning star pattern on your trading timeframe: If the first red candle is with low volume, and the second one is a small red candle, there will be no indication to go long yet. If the next is a long green candle with high volume, then this will be a strong indication of a trend reversal.
• Entry, take profit and stop loss: Enter the trade when the next green candle closes and close the position at any resistance area or supply-demand zone. Also, you can close your position when the price goes near the significant resistance level of the higher timeframe.