Candlestick chart patterns are one of the most popular ways to analyze the price action of financial assets. The Morning and Evening Star patterns are two such patterns that can indicate a reversal of the current trend. In this article, we will explore the Morning and Evening Star patterns, what they signify, and how to use them in trading.
What are Morning and Evening Star Candlestick Patterns?
The Morning and Evening Star patterns are formed of three candles and are commonly seen in the forex and stock markets. The Morning Star pattern signals the end of a bearish trend, while the Evening Star pattern indicates the end of a bullish trend. Let's examine each pattern in more detail.
Morning Star Pattern
The Morning Star pattern appears after a downtrend and signifies a potential reversal. The pattern consists of three candles, as follows:
A long bearish candle that continues the existing downtrend.
A short candlestick that shows indecision in the market, also known as a Doji or a Spinning Top.
A long bullish candle that closes above the midpoint of the first candle.
The Morning Star pattern shows that the bears are losing control, and the bulls are starting to take over. The Doji candlestick signals uncertainty, and the bullish candle confirms that the buyers have taken control of the market.
Evening Star Pattern
The Evening Star pattern appears after an uptrend and signals a potential reversal. The pattern consists of three candles, as follows:
A long bullish candle that continues the existing uptrend.
A short candlestick that shows indecision in the market, also known as a Doji or a Spinning Top.
A long bearish candle that closes below the midpoint of the first candle.
The Evening Star pattern shows that the bulls are losing control, and the bears are starting to take over. The Doji candlestick signals uncertainty, and the bearish candle confirms that the sellers have taken control of the market.
Trading the Morning and Evening Star Patterns
When trading the Morning and Evening Star patterns, it's important to wait for confirmation before entering a trade. Confirmation can come in the form of a bullish or bearish candlestick following the pattern.
To trade the Morning Star pattern, traders can enter a long position when the price breaks above the high of the third candle. A stop loss can be placed below the low of the first candle, and a take profit target can be set based on the trader's risk appetite.
To trade the Evening Star pattern, traders can enter a short position when the price breaks below the low of the third candle. A stop loss can be placed above the high of the first candle, and a take profit target can be set based on the trader's risk appetite.
Conclusion
The Morning and Evening Star patterns are popular candlestick patterns that can signal a potential reversal in the trend. Traders should wait for confirmation before entering a trade and use a stop loss and take profit target based on their risk appetite. By incorporating these patterns into their trading strategy, traders can increase their chances of success.