Candlestick patterns appearing on the price path have long been carefully studied by investors. This is to make future predictions. These are considered price signals in technical analysis. Today, in this article series about candle patterns, we will introduce to you the Morning Star candlestick pattern and its formation. This is one of the most effective price signals for a trend reversal.
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Video on how to identify and use Morning Star candle
What is Morning Star candlestick pattern?
Morning Star pattern is a Japanese candlestick pattern. This candlestick pattern usually appears at the end of a downtrend. It is the starting point for the uptrend of prices. Mastering this entry point will help you open options with a high win rate.
Structure of a Morning Star pattern
A standard Morning Star pattern consists of 3 candles.
- The first candle is a strong bearish candlestick (red).
- The second candle is a special candlestick called Spinning Top.
- Finally, the third one is a bullish candlestick (green) with the length at least equal to ½ of the first candle.
Variant Morning Star candlestick patterns
In addition to the standard pattern, variant Morning Star candles are also highly accurate. Depending on the second candle in the candlestick pattern, traders divide it into the following:
(A) Morning Doji Star candlestick pattern (the middle candle is a Doji candle).
(B) Pin Bar Star candlestick pattern (the middle candle is a Pin Bar candle).
(C) Abandoned Baby candlestick pattern (gaps occur between candles). They all have very high precision.
Morning Star candle formation
Traders often pay much attention to the Morning Star pattern at the end of a downtrend. At that time, this is a signal for traders that the price will rise again.
Sometimes, Morning Star candle may appear in an uptrend. It signals a continuation of the uptrend.
When you combine the 3 candles of Morning Star pattern, you will receive a Bullish Pin Bar (aka Hammer) candlestick. This is a candlestick signaling a reversal from bearish to bullish. However, the candle time period of Morning star pattern is longer. So its accuracy will be higher than a single Pin Bar.
How to use Morning Star pattern in options trading
This is a strong price signal with high accuracy. Morning Star candle pattern is very popular among Price Action traders. The best combination is using analytical indicators to identify trends. Then, use this candlestick pattern to determine entry points.
Notes: This pattern is a predictive signal for an uptrend. Therefore, when using it, you can only open UP options.
Strategy 1: Combine with Support
In this combination, the Support zone is considered as a hold. If there appears a Morning Star pattern, the price will most likely rebound. You can open an UP option with high security.
Conditions: A 5-minute Japanese candlestick price chart, the Support zone, the expiration time of 15 minutes or more.
How to open an option
+ Open an UP option when the price falls into the support zone and forms a Morning Star candle pattern.
Strategy 2: Combine with RSI indicator
The RSI technical indicator is always a strong indicator of price trend analysis. When combined with the Morning Star candlestick pattern, they will give you good points for bottom fishing.
Conditions: A 5-minute Japanese candlestick price chart, RSI indicator (14), the expiration time of 15 minutes or more.
How to open an option
+Open an UP option when the RSI indicator in the oversold zone (30), and the Morning Star pattern appears.
Notes when using the Morning Star reversal pattern
- Do not use this candlestick pattern alone to search for trades. Combine it with at least one indicator or another price signal for a higher probability of winning.
- Limit using this Morning Star pattern when the market goes sideways. Because the accuracy of this candlestick pattern is not high in a sideways market.
In addition to the above combination, in future strategy articles, we will cover more in-depth uses of this special candlestick pattern. Let’s follow it up.
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The post What Is Morning Star Candlestick Pattern? How To Use In Trading appeared first on How To Trade Blog.
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