Morning star candlestick

The pattern has three candles, each with its own role. The first is a long falling candle: sellers are in control. The second, the star, has a small body below the body of the first: the selling has stalled. The third is a long rising candle that closes deep inside the body of the first, at least above its midpoint.

The name comes from Japanese candlestick charting and refers to the morning star that appears before sunrise. Steve Nison described the pattern for Western traders.

Gaps between bodies are common on stocks and rare in crypto and forex, where each candle opens at the previous close. There traders accept a star whose small body sits at the low end of candle 1 rather than fully below it.

• Prior trend – a decline. Without it there is nothing to reverse.
• Candle 1 – a long falling body, larger than the recent average.
• Candle 2 – a small body, rising or falling, below the body of candle 1. In the classic version there is a gap between the two bodies.
• Candle 3 – a long rising body that closes above the midpoint of candle 1. The higher the close, the stronger the reading.
• Wicks – they may overlap. The gaps are measured between bodies.

The pattern carries more weight at a support level, when the RSI is in oversold territory, and when volume rises on the third candle. In Replay mode on Charts you can step through past declines one candle at a time and see how each morning star played out.

• Entry – on the close of the third candle, or when price trades above its high. The pattern is complete only when the third candle has closed.
• Stop – below the low of the star, the lowest point of the pattern.
• Target – the nearest resistance, often the level where the last leg of the decline began, or a fixed multiple of the risk.
• Position size – three candles with long bodies put the stop far from the entry. Size the trade from that distance.

The evening star is the mirror pattern at the end of an advance: a long rising candle, a small-bodied candle above it, then a long falling candle that closes below the midpoint of the first. The morning star is read as bullish, the evening star as bearish.

The trading rules are mirrored as well. For an evening star the entry is a short on the close of the third candle, and the stop goes above the high of the star.

When the middle candle is a doji – open and close at almost the same price – the pattern is called a morning doji star. The doji shows a full stop in the selling rather than a slowdown, and many traders rate this version as stronger.

If the doji gaps away from both neighbours so that even the wicks do not overlap, the pattern is called an abandoned baby. It is rare.

• Entering before the third candle closes – two candles are a fall and a pause, nothing more.
• Accepting a weak third candle – if it closes below the midpoint of the first, the pattern is not a morning star.
• A large middle candle – the star must have a small body. A large one means neither side has given up.
• No decline before it – three candles of this shape inside a range do not reverse anything.
• Ignoring resistance overhead – a pattern that completes right under a strong level leaves little room for the trade.