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. The Bollinger band indicator is a volatility based morning star candle study that is very useful in finding overextended price moves. More specifically, when the price reaches the upper line of the Bollinger band, that is typically a good time to look for selling opportunities. Both patterns consist of three candles, with the middle candle being smaller than the other two. The difference between the two patterns lies in the orientation of the candles.

Reversal patterns mark the turning point of an existing trend and are good indicators for taking profit or reversing your position. Generally, trend reversal patterns indicate that a support level in a downtrend or a resistance https://www.bigshotrading.info/ level in an uptrend will hold and that the pre-existing trend will start to reverse. These patterns allow you to enter early in the establishment of the new trend and are usually result in very profitable trades.

Where Would you Put Your Stop Loss if you were Trading Based on the Morning Star Pattern?

Once you’ve identified a morning star pattern, keep an eye out for more indicators that the market is truly reversing. Moving averages, Fibonacci retracement levels, and support and resistance levels are a few instances of confluence elements. It acts as a bullish reversal frequently enough that I consider it reliable. The frequency rank of 66 is high enough that you can find examples of the candlestick after a determined search, and the overall performance rank is near the top of the list. That means the trend after the breakout is often a profitable one. So my advice to you would be to know the patterns that we have discussed here. They are some of the most frequent and profitable patterns to trade on the Indian markets.

There are other additional ways where you can see the star forming. After three sessions, you’ll either see it is performing, or it doesn’t occur at all. Examples include the price action that acts as support or the relative strength indicator that reveals excessive stock sales. In light of this, let’s examine the strategy for correctly identifying the morning star candlestick step by step.

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However, in financial trading, no pattern can guarantee you a 100% profit. Nevertheless, this pattern is very effective from the bottom, and it represents a story about the market regarding buyers’ failure and sellers’ presence.

• The default “Intraday” page shows patterns detected using delayed intraday data.
• To be successful, traders should first practice with a demo account and conduct research to minimize risk.
• A doji is a trading session where a security’s open and close prices are virtually equal.
• When trading the Morning Star on forex markets, the price will very rarely gap like they do with stocks and so the three-candle pattern usually opens very close to the previous closing level.
• And this third test results in the formation of the Morning Star pattern.

One of the most important factors that confirm pattern formation is volume. Generally, a trader wants to see volume increasing throughout the three candles making up the pattern, with the third candle seeing the most volume. High volume on the third candle is often seen as a confirmation of the pattern, and a subsequent uptrend regardless of other indicators. When trading the Morning Star on forex markets, the price will very rarely gap like they do with stocks and so the three-candle pattern usually opens very close to the previous closing level. In terms of identifying a valid Morning Star pattern on the price chart, it’s important that the structure be analyzed in the context of the current price action.