A Morning Star is a three candlestick pattern that signals a key turning point in the market. It occurs when a decisive downtrend of selling pressure meets a point of exhaustion. This proves to be the key low of the trend. With the selling exhausted, the market then swings back higher for the start of a new positive trend.
There is an exhaustion gap down for Candle 2. This is important because it comes as a wave of opening sell orders hits the market. However, the move then fizzles out as the sell-off runs out of steam. This then forms a consolidation for Candle 2. A gap higher for the OPEN of Candle 3 signals a decisive shift to a more positive market sentiment. This starts the possibility of the set-up forming a Morning Star. A strong move higher in Candle 3 then completes the pattern. The opposite of the Morning Star is the Evening Star. This is a bearish candlestick set-up signalling the beginning of a new selling phase.
| Morning Star | |
| Price action | A three candlestick set-up that signals the end of a downtrend phase.Candle 1: A strong bearish candle, OPEN towards the HIGH of the session, with the CLOSE towards the LOW.Candle 2: The price OPEN is a gap down to a new low. The price then consolidates, ideally with the CLOSE above the OPEN.Candle 3: A gap higher at the OPEN begins a strong positive move. The OPEN is around the LOW of the session and the CLOSE towards the HIGH. |
| Morning Star types: | Morning Star (classic) The CLOSE price of the second candle is slightly higher than the OPEN. This leaves a small positive move for Candle 2, even if the CLOSE of Candle 2 is below the CLOSE of Candle 1. The gap down in Candle 2 and then gap back higher in Candle 3 are very similar. The HIGH/LOW ranges of Candles 1 & 3 are also very similar. |
| Morning Star (imperfect) Some variations would leave an imperfect Morning Star pattern. This includes conditions such as: Candle two may have a large rangeThe two gaps might vary in size.The real bodies of Candlesticks 1 & 3 may vary in size.There may be long shadows on Candlesticks 1 & 3. | |
| Morning Doji Star Candle 2 is a doji. The gap down at the OPEN then consolidates with only small fluctuations throughout the session. The CLOSE of Candle 2 is then the same as the OPEN of Candle 2. | |
| Bullish Abandoned Baby This is one step further than the Morning Doji Star. The HIGH Candle 2 is below the LOW of Candle 1. The gap higher for Candle 3 is entirely above Candle 2 leaving an unfilled gap higher as the market swings decisively higher. This is said to have left Candle 2 entirely abandoned by the price action of Candles 1 & 3. | |
| Psychology | The price has accelerated lower, with a final exhaustion gap.This proves to be the final act of selling before the market swings back higher again. |
| Confirmation | Only after the strong CLOSE higher of Candle 3 can confirmation be seen. |
| High Conviction | The CLOSE of Candle 3 is above the OPEN of Candle 1. |
| Lower Conviction | See above for conditions of the imperfect Morning Star.Additionally, if the market has not been in a strong downtrend before the Morning Star this reduces the conviction in the turn higher. |
| Potential Stop-Loss | The Morning Star is seen as a key low in the downtrend. Stop-losses should therefore be placed below the LOW of Candle 2. |
