The morning star pattern is one of the best ways to identify the bottom of a downtrend. This makes it one of the most sought after patterns both by trend followers and price action traders. Whenever you see this pattern, it's a signal to shift gears and go long.
This guide will teach you how to identify a morning star pattern. Then, you'll learn how to use it to trade on IQ Option.
What is the Morning Star pattern?
The morning star pattern consists of 3 candles. It forms at the bottom of a downtrend and signals a trend reversal. The first candle is usually a large bearish candle. This shows a large price drop as bears have control of the market.
The middle candle is a doji. It shows indecision where the bulls step in driving the prices slightly up. What makes this candle unique is that it has a relatively small body with wicks on both ends. The session's low is usually around the same price level as that of the previous bearish candle.
The next candle is a bullish candle. It's usually large-bodied signalling that the bulls have finally taken over the markets and are driving prices up.
What does a Morning Star look like in trading?
There is one very important point that we make in all candlestick patterns. This issue is the trend. For any candlestick pattern to exist, there needs to be a trend preceding it. This does not have to be a long term and important trend, but it must exist and precede the pattern. In the case of the morning star pattern, the pattern has to be preceded by a downtrend. This downtrend may be a corrective move down in the main uptrend.
The idea is that there should be a market context for the reversal of the current market trend. If this pattern occurs, for example near the top of an uptrend, it is certainly not a morning star pattern, but only 3 candles that look like it.
What is the difference between Morning Star and Evening Star candlestick patterns?
The opposite pattern to the morning star is the evening star. Look for it in an uptrend. A long uptrend is followed by a doji candle which indicates the presence of sellers who are holding back the price. The 3rd candle in this pattern is usually a long body downtrend candle. The Evening Star formation is a bearish reversal pattern.
Interpreting the morning star pattern
After the bears control the market for some time, the bulls will eventually start getting in to prevent prices from going down further. As both bulls and bears tussle to have control over the markets, an indecision candle forms (doji). The bears lose the battle allowing the bulls to take control of the markets reversing the trend.
Using the EUR/USD candles pattern above, you'll notice that the support is suddenly broken by a large bearish candle. However, the bulls step in creating indecision.
The next session begins with a solid bullish candle. Your trade entry should be at the high of the doji candle. Here you should place a long (15 minutes or more) higher trade on your IQ Option interface. Notice that Each candle represents a 5-minute interval so holding the position for 15 minutes or more is recommended.
How reliable is the Morning Star pattern?
There are numerous analyses of this candlestick pattern. However, most of them concern studies on daily charts. As a rule, however, patterns that work on daily charts perform similarly on intraday time frames such as the 5-minute, 15-minute or hourly chart. In theory, the Morning Star pattern is a bullish reversal pattern.
Research in various markets confirms that the occurrence of this pattern heralds a change of trend to an uptrend in 75-80% of cases. This pattern occurs with average frequency compared to other patterns known on Japanese candles. All this indicates that it is worth knowing and using this candlestick pattern.
We remind you that all candlestick patterns can work even better if you combine them with other chart analysis techniques. Here, support and resistance levels immediately come to mind. It is not difficult to imagine when the price of an asset falls and reaches an important support level. If the Morning Star pattern then appears we have a much better chance of changing the trend.
That's the morning star pattern at work. Now, try it out in your IQ Option practice account today and share your results in the comments section below.
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