The Morning Star
is a pattern seen in a
candlestick chart
A candlestick chart (also called Japanese candlestick chart or K-line) is a style of financial chart used to describe price movements of a security, derivative, or currency.
It is similar to a bar chart in that each candlestick represents all f ...
, a popular type of a chart used by technical analysts to anticipate or predict price action of a
security" \n\n\nsecurity.txt is a proposed standard for websites' security information that is meant to allow security researchers to easily report security vulnerabilities. The standard prescribes a text file called \"security.txt\" in the well known locat ...
,
derivative
In mathematics, the derivative of a function of a real variable measures the sensitivity to change of the function value (output value) with respect to a change in its argument (input value). Derivatives are a fundamental tool of calculus. ...
, or
currency
A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins.
A more general ...
over a short period of time.
Description
The pattern is made up of three candles: normally a long
bearish
Market sentiment, also known as investor attention, is the general prevailing attitude of investors as to anticipated price development in a market. This attitude is the accumulation of a variety of fundamental and technical factors, including ...
candle, followed by a short
bullish
Market sentiment, also known as investor attention, is the general prevailing attitude of investors as to anticipated price development in a market. This attitude is the accumulation of a variety of fundamental and technical factors, including ...
or bearish
doji or a small body candlestick,
which is then followed by a long bullish candle. To have a valid Morning Star formation, most traders look for the top of the third candle to be at least halfway up the body of the first candle in the pattern. Black candles indicate falling prices, and white candles indicate rising prices.
Interpretation
When found in a downtrend, this pattern can be an indication that a reversal in the price trend is going to take place. What the pattern represents from a
supply and demand point of view is a lot of selling in the period of the first black candle. Then, a period of lower trading with a reduced range, which indicates indecision in the market, forms the second candle. This is followed by a large white candle, which represents buyers taking control of the market. As the Morning Star is a three-candle pattern, traders often don't wait for confirmation from a fourth candle before they buy the stock. High volumes on the third trading day confirm the pattern. Traders look at the size of the candles for an indication of the size of the potential reversal. The larger the white and black candle, and the higher the white candle moves in relation to the black candle, the larger the potential reversal.
The chart below illustrates.
The opposite occurring at the top of an uptrend is called an evening star.
See also
*
Technical analysis
In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the sam ...
*
Chart pattern
A chart pattern or price pattern is a pattern within a chart when prices are graphed. In stock and commodity markets trading, chart pattern studies play a large role during technical analysis. When data is plotted there is usually a pattern which ...
References
{{technical analysis
Candlestick patterns