This blog post will look at the morning star pattern and what it could mean for forex traders. A morning star is best when it is backed up by volume and some other indicator like a support level. Otherwise, it is very easy to see morning stars forming whenever a small candle pops up in a downtrend. Another important factor is the volume that is contributing to the pattern formation. It is a suitable format identified by the technical analysts, but trading based on a visual sign might not be the best decision they’d make.
This can be seen by how the Doji has a long upper shadow, which shows that the bears tried to push prices lower but eventually failed. The Morning Star pattern can be observed in the EUR/GBP chart below, where there is an established downtrend leading up to the formation of the reversal pattern. As said earlier, the occurrence of a morning star pattern is not as frequent as those of a single-candle formation. They are harder to spot, aside from you practically needing to fulfil all four conditions before you can verify its presence. The first is to wait and watch what happens in the session after the pattern. If the bullish move looks like it is continuing, then it might be time to trade.
As such the long entry would be triggered at the start of the following candle as shown on the price chart. And so, when the percent D line of the Stochastics indicator is in oversold territory, then that is usually a signal that prices are more likely to reverse to the upside. When you couple that oversold reading with a candlestick pattern like the Morning Star, that can provide for a high probability play to the long side. As prices move higher following the second swing low, we can see a third test of the key support level. Because of this, we would favor an upside reversal and expect the key support level to hold. As expected, the price begins to rise following the completion of the Morning Star formation.
Yes, the morning star pattern is considered bullish, suggesting a potential reversal of a bearish trend and an increase in prices. A bullish reversal is signaled by the morning star candlestick, a triple candlestick pattern. It forms at the bottom of a downtrend and indicates that the downtrend is about to reverse. A three-candlestick pattern called the morning star can indicate a market reversal. The pattern consists of a long bearish candle, a short bullish candle that gaps down from the first candle, and then a long bullish candle that closes above the first candle’s midpoint. They are used by technical chart analysts as a signal to identify bullish reversals after a downward-trending price period.
We used the volume indicator to help confirm the overall pattern and it played a crucial role in the easy-to-follow strategy that we proposed in this article. Morning Star in Forex is used to identify upcoming bullish runs of different assets. If you are looking for the bearish pattern, then using Evening Star pattern will be the best option.
On the candlestick chart above you can see there is a strong downtrend leading up to the Morning Star formation. At the time the Morning Star reversal pattern was forming, the Stochastics percent D reading was below the oversold threshold as can be referenced by the lower blue arrow on the chart. There are several ways that a trader can execute a buy entry using the Morning Star formation.
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It warns of weakness in a downtrend that could potentially lead to a trend reversal. As we can clearly see the price moves above the centerline within three bars of the entry signal. As such, will continue holding the trade and utilize the same centerline as our trailing stop mechanism now. Let’s now look at another filter that works well with the Morning Star set up. More specifically, when you incorporate an oversold reading from a momentum based oscillator, such as the Stochastics indicator, you will increase your chances of a successful trade. The Doji Morning Star Pattern is formed when a Doji, or a candlestick with a very small body, gaps below the previous candlestick and then rallies to close above that candlestick open.
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Any statements about profits or income, expressed or implied, do not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed. You accept full responsibilities for your actions, trades, profit or loss, and agree to hold The Forex Geek and any authorized distributors of this information harmless in any and all ways. It shows bears are still in control, but they are not pushing the price lower. If the second candle is bullish, this is a sign of a more definite reversal.
Let’s take a look at an example of a Morning Star at a support level using the daily chart of the EURJPY pair. BlackBull Markets is a reliable and well-respected trading platform that provides its customers with high-quality access to a wide range of asset groups. The broker is headquartered in New Zealand which explains why it has flown under the radar for a few years but it is a great broker that is now building a global following. The BlackBull Markets site is intuitive and easy to use, making it an ideal choice for beginners.
This condition will allow us to stay in the trade for further upside potential. When entering into a long position using the Morning Star pattern, it can sometimes be difficult to gauge where the price target should be placed. This is because the Morning Star pattern does not provide any clues as it relates to the extent of the price move that will follow. As such, you will need to use some other technical tool for exiting the trade. One such technique could be to use a three bar low as a trailing stop after the price has moved in your favor by a certain amount. That is to say that your exit order would then be triggered when the price breaches the low of the last three completed bars.
We’re also a community of traders that support each other on our daily trading journey. If volume data is available, reliability is also enhanced if the volume on the first candlestick is below average and the volume on the third candlestick is above average. Referring to the far right of the price chart you can see when that event occurred, which would have taken us out of the position, morning star forex pattern resulting in a profitable trade. Now with these conditions met, we can focus on executing a long entry on this currency pair. The long entry would be initiated at the beginning of the candle immediately following the completion of the Morning Star pattern. You can see where that entry would’ve occurred by referencing the blue arrow following the Morning Star formation.
It might not hold much importance generally, but supporting indicators can make a huge difference. As we know, reversal candlesticks are trading patterns that suggest a possible change in future trends trend reversal. A candlestick chart is popular amongst technical analysts when identifying a morning star forex pattern. The candlestick chart is used to predict or anticipate price action of a derivative, currency, or security over a short period.
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