Morning/Evening Star

Trading the Bullish Morning Star

Sources: DailyFX ; LearnToTradeToProfit ; TradingPedia ;

 

Evening Star and Morning Star

Evening Star and Morning Star, as you can guess, are two opposite patterns, which attempt to foresee a trend reversal. We will describe all the peculiarities of the Evening Star pattern and leave the Morning star, because it is completely identical, but from a bullish point of view. Both of these patterns are considered as generally very reliable and with very few drawdowns.

The Evening Star is a bearish pattern which occurs at market tops, very often marking the end of an uptrend. It consists of three candles. The first one is a solid bullish candle, followed by a small candle, known as a “star” – this is where the pattern derives its name from. The formation of the star implies an opening gap, just as the Dark Cloud Cover pattern, but as the price then drops and its body forms, it should not cross the body of the first bullish candle. The middle candle can be of either color. Check out the picture below.

1. Evening star

The middle candle can also be a Doji and such a pattern is known as an Evening Doji Star. Even if its not a Doji, the middle candle is always relatively similar to it, representing a sudden halt in market movement and the battle between bulls and bears.

For this pattern to play out, the third candle needs to be a solid bearish one, representing the win the sellers had over the buyers during the plotting of the “star”. The third candles body should also not cross the star, which however rarely occurs and is not a mandatory condition for the pattern. The most important requirement however is that the bearish candle must deeply penetrate the body of the bullish one, with the amount of penetration being the most significant factor – the third candles body should extend to at least 2/3 or even ¾ of the first ones height.

The pattern is considered failed if the market closes above its high, and is deemed triggered if it closes below the patterns low.

The interpretation is pretty simple and straightforward. We have a clear uptrend, dominated by the buyers, as visualized by the first solid bullish candle. Suddenly a turnaround begins to occur, with the “star” reflecting the buyers inability to push the price higher as bears regain strength and grow in numbers. The third candle (solid bearish) then marks the sellers victory.

 

Bullish Mronig Star

 

 

Article Summary:Finding reversals of momentum may prove difficult for Forex traders. Today we will review price action tips using the Bullish Morning Star candle pattern.

One of the most coveted skills in trading is the ability to identify changes in market trends. While it may seem difficult at first, Forex traders can specifically benefit from identifying reversals through price action analysis and the interpretation of candlestick pattern. Once you have a few of the basic candle patterns memorized you can then begin working them into any active trading strategy. With this idea in mind, we will again focus on recognizing and trading one of the easiest identifiable candle stick patterns, the bullish morning star.

Trading_the_Bullish_Morning_Star_body_Picture_2.png, Trading the Bullish Morning Star

What is a bullish morning star?

A bullishmorning star pattern is a candlestick pattern normally found at the end of a period ofdownward market pressure. Pictured above we can see the pattern itself which iscomprised of three completed candles. The first candle will depict the end of the currency pairs established weakness. The size of this first candle can vary, but it is important for this candle to close creating a lower low.

Next traders will look at the second candle of the pattern to identify a bullish morning star. Price should attempt to dip here and create a slightly lower low relative to our first candle. However, a rally should prop price up closing the candle near the open for the day. More often than not, a doji can be seen in this position but the candle can close either blue or red in this position. This doji suggests that bearish price momentum is concluding and the end of bearish momentum. The last candle should show the beginning of fresh bearish momentum. While any bullish candle can complete the pattern, preferably traders will look for a large bullish engulfing candle here.

Learn Forex – GBPCAD with Bullish Morning Star

Trading_the_Bullish_Morning_Star_body_Picture_1.png, Trading the Bullish Morning Star

(Created using FXCM’s Marketscope 2.0 charts)

Uses in Trading

Once you are familiarized with identifying the bullish morning star pattern it can then readily be applied into virtually any trading strategy. Above is a great example of the pattern at work on a daily GBPCAD chart. The GBPCAD chart retraced from a previous high, ending in a highlighted morning star. After the completion of the third candle in the pattern, traders can reasonably assume the trend has turned back to its primary direction while looking for fresh opportunities to buy the GBPCAD.

As you can see candle patterns are a great way to interpret price action. However, keep in mind reversal patterns may symbolize a change of direction but not necessarily suggest a complete trend reversal. As always when working with any active market strategy, a stop order should be used with appropriate risk management for a traders account.

—Written by Walker England, Trading Instructor

To contact Walker, email [email protected] Follow me on Twitter at @WEnglandFX.

To be added to Walker’s e-mail distribution list, CLICK HERE and enter in your email information.

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Morning Star

 

What is the morning star breakout pattern?

A morning star is a strong reversal pattern in a downtrend; as shown in the figure below. It consists of three candlesticks:

1- A long black candlestick.
This confirms that the downtrend is in place.

2- A small white or black candlestick that is below the previous candlestick.
This indicates more selling pressure. Since the size of this candlestick is small, it indicates indecision, and a possible reversal of trend.

3- A long white candlestick
This signals a reversal of the downtrend.

Morning Star Pattern

When to trade the morning star pattern?

Upon discovering the morning star, wait for some time to confirm that the price is indeed moving up. If the price doesn’t fall below the candle formed in step 3 above, initiate a buy position to gain from an up move. The probability of success for this strategy is 80%.

 

 

Trading the USDJPY Evening Star

 

Talking Points:

  • Candle patters can pinpoint reversals in the trend
  • The evening star requires 3 candles for confirmation
  • Once spotted, traders can look for breakout opportunities

Traders looking for confirmation in their entries often turn to candlestick analysis. Patterns of candles can assist technical traders in both continuations and potential reversals in price. Today we will review the bearish evening star pattern, and how it can be used in trading. Let’s get started!

Trading-the-USDJPY-Evening-Star_body_Picture_2.png, Trading the USDJPY Evening Star

What is a bearish evening star?

The bearish evening star is a three candle, candle pattern used to determine turns or reversals in an established uptrend. Pictured above you can see the composition of an evening star as it should appear on your graph. The first two candles are used to represent the conclusion of an existing uptrend. The second candle in the pattern is often identified with a long wick, or has the appearance of a doji candle. This is the trader’s first clue that a bearish evening star is developing.

The 3rd candle of the evening star is arguable the most important. A bearish candle is needed in this position to signal a change in the trend. Preferably traders want to see a strong selloff at this point on the graph. The further this candle declines in price, the greater bearish momentum becomes. Often we will find a bearish engulfing candle here, signaling a breakout in the trend. Now that you are more familiar with the evening star pattern, let’s look at an example.

Trading-the-USDJPY-Evening-Star_body_Picture_1.png, Trading the USDJPY Evening Star

(Created using FXCM’s Marketscope 2.0 charts)

USDJPY Trading

Bullish hammer candles can be found on a variety of charts and time frames. Depicted above is an example of an evening star developing on the USDJPY daily chart. Over the past three days this pattern has been developing with the continuation of bullish momentum on April 2nd. This momentum is concluded with a doji on April 3rd, and today’s price action is breaking towards lower lows to complete the pattern.

Normally traders choosing to look for evening stars like to trade breakouts in the direction of the new downtrend. One way to do this is to plan entry orders underneath the low of the first candle in the pattern. This ensures that a lower low has been established prior to market entry. Another popular method to trade this pattern is in conjuncture with oscillator divergence. When paired with an indicator like MACD, both signals can help spot reversals and better plan market entries.

To practice trading candle patterns, register for a Free Forex Demoaccount with FXCM. This way you can become comfortable with your new strategy while working on your technical analysis skills in real time!

—Written by Walker England, Trading Instructor

To contact Walker, email [email protected] Follow me on Twitter at @WEnglandFX.

To be added to Walker’s e-mail distribution list, CLICK HERE and enter in your email information

New to the FX market? Save hours in figuring out what FOREX trading is all about.Take this free 20 minute“New to FX”course presented by DailyFX Education. In the course, you will learn about the basics of a FOREX transaction, what leverage is, and how to determine an appropriate amount of leverage for your trading.

Register HEREto start your FOREX learning now!

DailyFX providesforex newson the economic reports and political events that influence the currency market. Learncurrency tradingwith a free practice account and charts from FXCM.

https://www.dailyfx.com/forex-education

 

 

 

Evening Star

The evening star is a strong reversal pattern in an uptrend; as shown in the figure below. It consists of three candlesticks:

1- A long white candlestick.
This confirms that the uptrend is in place.

2- A small white or black candlestick that is above the previous candlestick.
This indicates more buying power. Since the size of this candlestick is small, it indicates indecision, and a possible reversal of trend.

3- A long black candlestick
This signals a reversal of the uptrend.

When to trade the evening star pattern?

Upon discovering the evening star, wait for some time to confirm that the price is indeed coming down. If the price doesn’t move above the candle formed in step 3, initiate a sell position to gain from a down move. The probability of success for this strategy is 80%.

Points to Remember:

• Be careful while choosing the highs and the lows to draw the support and the resistance trend lines. Trading is not an exact science. Slight deviations can be ignored.

• Candles of any colour can be used to draw the candlestick chart. However, remember to follow the logic presented.

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