This technical analysis guide covers the Morning Star Candlestick chart indicator. The pattern is split into three separate candles with relationships between all of them.
We also included an example chart that we interpret using the Morning Star Candlestick indicator and learn how to spot a bullish opening on the third candlestick.
What Is The Morning Star Candlestick?
The Morning Star Pattern is viewed as a bullish reversal pattern, usually occurring at the bottom of a downtrend. The pattern consists of three candlesticks:
- Large Bearish Candle (Day 1)
- Small Bullish or Bearish Candle (Day 2)
- Large Bullish Candle (Day 3)
The first part of a Morning Star reversal pattern is a large bearish red candle.
On the first day, bears are definitely in charge, usually making new lows.
Can You Read Days 2 And 3?
The second day begins with a bearish gap down. It is clear from the opening of Day 2 that bears are in control.
However, bears do not push prices much lower. The candlestick on Day 2 is quite small and can be bullish, bearish, or neutral (i.e. Doji).
Generally speaking, a bullish candle on Day 2 is viewed as a stronger sign of an impending reversal. But it is Day 3 that holds the most significance.
Day 3 begins with a bullish gap up, and bulls are able to press prices even further upward, often eliminating the losses seen on Day 1.
How To Read The Morning Star Candlestick
The chart below of the S&P 400 Midcap exchange traded fund (MDY) shows an example a Morning Star bullish reversal pattern that occured at the end of a downtrend:
Day 1 of the Morning Star pattern for the Midcap 400 (MDY) chart above was a strong bearish red candle. Day 2 continued Day 1’s bearish sentiment by gapping down.
However, Day 2 was a Doji, which is a candlestick signifying indecision. Bears were unable to continue the large decreases of the previous day; they were only able to close slightly lower than the open.
Can You See The Bullish Gap On Day 3?
Day 3 began with a bullish gap up. The bulls then took hold of the Midcap 400 exchange traded fund for the entire day.
Also, Day 3 broke above the downward trendline that had served as resistance for MDY for the past week and a half. Both the trendline break and the classic Morning Star pattern could have given traders a potential signal to go long and buy the Midcap 400 exchange traded fund.
The bearish equivalent of the Morning Star is the Evening Star pattern.
Where To Trade With Candlestick Analysis?
If you are interested in trading using technical analysis, have a look at our reviews of these regulated brokers in to learn which charting tools they offer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Learn more about technical analysis charting concepts and strategies including Momentum, Volatility, Time Series Forecast, Typical Price Moving Average, Standard Error Bands, Market Thrust, Adaptive Market Averages, and Average Directional Movement.
If you’d like a primer on how to trade commodities in general, please see our introduction to commodity trading.
What does a Morning Star look like in trading?
The morning star candlestick pattern is easily recognizable on a chart since it consists of three different candlesticks. The first candlestick drops with a gap down, followed by the third candlestick, which is followed by a gap up to the third and final candlestick of the morning star index.
What is the difference between Morning Star and Evening Star candlestick patterns?
The main difference between the morning star candlestick and evening star candlestick patterns is that the morning star is considered a bullish indicator, while the evening star is bearish. The evening star has the middle candle at a higher peak than both side candles with a gap up followed by a gap down, while the morning star has the middle candlestick the lowest with a gap down followed by a gap up.