Trading based on candlestick patterns is a method favored by many traders. The Morning Star candlestick pattern is one of the most widely used patterns. So what is the Morning Star candlestick pattern? Let’s explore details about Morningstar candlestick with Forex Trading in the article below!
What is the Morning Star candlestick pattern?
Along with the engulfing candle, the Morning Star and Evening Star candlestick patterns are popular patterns in technical analysis. They provide important signs of price trend reversals. The Morning Star pattern is also known as the MorningStar candlestick. The pattern signals a shift from a downtrend to an uptrend. The Evening Star model is also known as the Evening Star. This model predicts the possibility of switching from an uptrend to a downtrend.
What is the Morning Star Doji candlestick pattern?
The Morning Star candlestick pattern is also known as the MorningStar candlestick. This is a type of Japanese candlestick pattern consisting of three candles. Its characteristics are as follows: the first candle is a strong bearish candle with a long body and red color. The second candle can be a bullish or bearish candle, but has a short body. The third candle is a strong bullish candle with a long, green body. It shows a clear upward trend in prices.
The Morning Star candlestick pattern often appears at the end of a downtrend on the trading chart. It signals that the price may be about to turn from falling to rising. When seeing this pattern, traders should consider the possibility of an impending reversal. To increase reliability, traders can combine it with other analytical tools. From there, they find the ideal time to place Buy orders and maximize profits.
Experts say that the Morning Star candlestick is a continuation variation of the Bullish Harami pattern. Furthermore, it is also the complete opposite of Evening Star.
See more: Read candlestick charts: Basic & advanced material
Evening Star candlestick pattern
The evening star candlestick pattern is also known as the Evening Star. This is one of the candlestick chart types that predicts potential reversals. This pattern includes 3 candles. The first candle is a large bullish candle, the second can be a bullish or bearish candle. Additionally, the last candle is a strong bearish candle. When the evening star candlestick pattern appears, it usually indicates that the price is likely to start falling. The shape and characteristics of the evening star pattern are completely opposite to the Morning Star pattern.
Currently, the Evening Star candlestick pattern is widely used in financial markets. The popularity of this pattern stems from the fact that it is easy to identify with the naked eye. Evening Star remains one of the most popular tools among investors.
How to determine what Morningstar is on the chart
The market may be in a long-term downtrend or in an uptrend correction phase. The MorningStar candlestick pattern includes three candles with the following characteristics:
- The first candle is a bearish candle with a long body, indicating strong selling pressure.
- The second candle is a Doji candle, with a short body and short shadows. Notably, it creates a gap compared to the first candle.
- The third candle is a strong bullish candle with a long body. This candle must open with a gap up compared to the second candle.
- The closing price of the third candle must be higher than half the body of the first bearish candle. Mainly it confirms the market reversal.
How to trade through the Morning Star candlestick pattern
The MorningStar candlestick pattern is always famous for its simplicity and ease of observation. That is why traders often choose this model to trade in the market. With outstanding criteria, let’s see how it trades!
What is the way to trade reversals with Morning Star?
When the Morning Star candlestick pattern appears at the end of a downtrend, traders should consider a reversal trading strategy. In particular, you must pay attention to the highest possible profit in this case. To implement this method, traders need to perform the following steps:
Step 1: Identify trends
Traders need to determine that the market is in a downtrend before the MorningStar candlestick pattern appears. You need to be careful for signs of weakness in the trend. One indicator of this is the market’s continued failure to create new lows that are lower than the previous low.
The time frame traders choose to determine the trend depends on the type of trade they want to make. It could be short-term, medium-term or long-term. For example:
- Scalping is also known as scalping trading. It can be done by analyzing 5-minute or 15-minute timeframes. And then find the entry point based on the 1-minute time frame.
- Short-term trading is also known as Day trading. You should perform analysis on longer time frames like 30 minutes or 45 minutes. Then determine the entry point on the 5-minute frame.
- Swing trading is also known as medium-term trading. It usually uses a 1-hour or 4-hour time frame for trend analysis. While entry decisions can be made on the 30-minute timeframe.
- The fourth method is Position trading. For analysis, you can use large time frames such as 1 day, 1 week, or 1 month. But while the entry point is usually determined on the 4-hour frame.
Step 2: Use in combination with other tools.
To increase the accuracy of signals, traders should combine them with other analytical tools. Some examples are RSI, MACD, PSAR, or Bollinger Bands. Besides, you can refer to price models or candlesticks that confirm the downtrend. Purpose to make trading decisions.
Step 3: Find the appropriate point to enter the order.
Traders can determine the Buy entry point in the following ways:
- Entry point: At the closing price of the green candle, the candle confirmed the upward price shift after the Morning Star model.
- Stop Loss: Below the most recent key support level.
- Take Profit: According to the R: R ratio, set a target higher than 1:3.
For example: On the EUR/USD currency pair in the 5-minute time frame, when the pair is in a downtrend.
It can be seen that at the bottom of the downtrend, the Morning Star candlestick pattern was formed. At the same time, the MACD line cuts the signal line from bottom to top. Meanwhile, the PSAR dots move from top to bottom. The RSI indicator is also in the oversold zone, indicating the possibility of an upcoming reversal.
These signals all show that the market is about to change from a downtrend to an uptrend. Traders can close existing Sell orders or open Buy orders with the following conditions:
- Buy order entry point: When the price reaches 1.01549
- Stop Loss: At price 1.01466
- Take Profit: At price 1.01798
What is trend-following trading with Morningstar candlesticks?
This trading method is suitable when the MorningStar candlestick pattern appears during downward corrections of an uptrend. Additionally, traders can also use this approach if they pursue a Scalping strategy. Refer to trading with Heiken Ashi candle to learn more useful Forex models besides the Morning Star candle
Step 1: Identify trends
When trading this trend, traders need to use price channels or trendline drawing tools. The purpose is to determine the certainty of the uptrend. If the uptrend is still strong, continue to monitor the price chart. Consider the case of the MorningStar candlestick pattern appearing at the bottom of downward corrections. At that time, traders can enter a Buy order in the correct direction of the main trend.
Step 2: Place an order
- Buy entry point: At the opening price of the next candle after the Morning Star pattern
- Stop Loss Point: A few pips below the lowest level of the second candle in the Morning Star pattern
- Take Profit: According to the R: R ratio, with a target from 1:2 to 1:3
For example We will trade the XAU/USD pair in a 5-minute time frame.
During the price adjustment, the Morning Star candlestick pattern appeared. At the same time, the PSAR dots are moving from top to bottom. The MACD line has crossed the signal line from bottom to top. These signs show that the uptrend is still strong. Traders can see this as the appropriate time to enter a Buy order.
- Buy order entry point: When the price reaches 1765.431
- Stop Loss: At price 1763.409
- Take Profit: At a price of 1769,475, with an R: R ratio of 1:2.
Is Sao Mai Candles reliable in forex trading?
The Morning Star candlestick pattern needs to be evaluated based on its compatibility with the current trend. At the same time, consider whether there is any supporting evidence to show an advantage in the transaction. Below are some pros and cons of the MorningStar candlestick pattern :
Dominance
- Often appears commonly on the stock market.
- The model provides clear entry points and stop loss levels.
- The Morning Star candlestick pattern is easy to recognize.
Defect
Trading solely based on the Morning Star candlestick pattern can be an extremely risky and dangerous strategy. The effectiveness of this candlestick pattern is most optimal when accompanied by high trading volume. As well as the presence of other technical indicators such as support levels.
The MorningStar candlestick pattern often appears on the chart. Sometimes it can form whenever there is a small candle in a downtrend. For that reason, investors should combine it with other indicators to make more accurate trading decisions.
See more: Prestige Broker XTB: Elevate position of invest player
Epilogue
The Morning Star candlestick pattern is a useful tool for predicting reversals in the market. It is important to always combine with other indicators and consider risk factors. Trading requires not only knowledge but also experience and sound strategies. To become a successful trader, you need to keep learning. That is what Forex Trading wants to provide to readers about the MorningStar candlestick
Question related to Morning Star candlestick
How to trade with the Morning Star candlestick pattern?
Traders often wait for the third candle to complete to confirm the reversal. The entry point is usually at the end of the third bullish candle. While Stop Loss can be placed below the bottom of the middle candle. Take Profit can be determined using the R: R ratio. It is also possible that it identifies nearby resistance levels.
Is Morning Star Candles trustworthy?
The Morning Star candlestick pattern can be a strong signal for a reversal. However, reliability also depends on the market context and other technical factors. The combination of trading volume, technical indicators, and support/resistance levels helps increase the reliability of the model.
How is the Morning Star candlestick different from the Evening Star candlestick?
The Morning Star candlestick is a pattern signaling a reversal from decreasing to increasing. While the Evening Star candlestick signals a reversal from bullish to bearish. Both patterns have a three-candle structure, but the direction of the trend change is different.
