We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bearish
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Mixed
Gold
Mixed
Oil - US Crude
Mixed
Bitcoin
Mixed
More View more
Notice

DailyFX PLUS Content Now Available Freely to all DailyFX Users

Real Time News
  • Your psychology has a significant impact on the decisions you make, particularly if you are new to trading. How can you avoid your emotions from turning you into a #FOMO trader? Find out: https://t.co/FC7CHpk9vA #FOMOintrading https://t.co/WSDr3JkpAG
  • $AUDUSD: Short-term support could lead-in to a quick bounce up to resistance as taken from another prior support level, plotted around the .6830 level on the chart. Get your market update from @JStanleyFX here: https://t.co/tUoe1Roo5t https://t.co/omaDxGNhZU
  • Central bank independence has several advantages. Find out what they are in detail with @MartinSEssex here: https://t.co/wVFXbbTxf1 https://t.co/cQQmuH8biQ
  • The US Dollar remains in consolidation mode against the Philippine Peso and Indian Rupee. Will the Singapore Dollar weaken as $USDSGD rising support holds ahead? Find out from @ddubrovskyFX here: https://t.co/HZ8Loqj3Ey https://t.co/6PCFkdj3ka
  • Follow @DailyFXedu for your regular #webinar updates with @DailyFX analysts and catch up on the webinars you missed. https://t.co/Da10QUg9r1
  • Greed has proven to be a hindrance more than assistance for traders. How does greed lead to #FOMOintrading? Find out from @RichardSnowFX here: https://t.co/aT8TZjlFqP https://t.co/Le8Qx6OOwV
  • $GBPUSD at the moment break-even straddles = 152pips meaning that for option traders to realize gains, the spot price must see a move greater than 152pips. Get your market update from @JMcQueenFX here: https://t.co/odj2lLRrGf https://t.co/RXCBwHGluG
  • $EURGBP has fallen over 6% since August and is now rapidly approaching a critical support level not reached since May. Will a break below accelerate the aggressive selloff? Find out from @ZabelinDimitri here: https://t.co/CBM8Fg7vM0 https://t.co/0yDnEpzQqR
  • The #Euro is struggling for direction against the US Dollar but the near-term downtrend guiding it lower since late June remains firmly intact. Where is $EURUSD heading? Get your technical analysis from @IlyaSpivak here: https://t.co/us6AINmuoe https://t.co/J4hQtyprYf
  • $DXY & $SPX500 hold steady after #FED rate cut. Get your update from @JohnKicklighter here: https://t.co/vqXlKCMDYA
Morning Star Candlestick: A Forex Trader’s Guide

Morning Star Candlestick: A Forex Trader’s Guide

2019-09-10 16:34:00
Richard Snow, Markets Writer
Share:

The Morning Star candlestick is a three-candle pattern that signals a reversal in the market and can be used when trading forex or any other market. Correctly spotting reversals is crucial when trading financial markets because it allows traders to enter at attractive levels at the very start of a possible trend reversal.

This article explores the following talking points:

  • What is a Morning Star candlestick?
  • How to Identify a Morning Star on forex charts
  • How to trade the Morning Star pattern
  • How reliable is the Morning Star in forex trading?

What is a Morning Star Candlestick?

The Morning Star pattern is a three-candle, bullish reversal candlestick pattern that appears at the bottom of a downtrend. It reveals a slowing down of downward momentum before a large bullish move lays the foundation for a new uptrend.

Morning Star pattern

Morning Star Doji

Traders will often look for signs of indecision in the market where selling pressure subsides and leaves the market somewhat flat. This is where Doji candles can be observed as the market opens and closes at the same level or very close to the same level. This indecision paves the way for a bullish move as bulls see value at this level and prevent further selling. The appearance of the bullish candle after the Doji provides this bullish confirmation.

Morning Star Doji

What about the Evening Star?

The bearish version of the Morning Star is the evening star and it signifies a potential turning point in a rising market ( bearish reversal pattern). The same analysis applied to the Morning Star can be implemented with the evening star however, it will be the opposite direction.

How to identify a Morning Star on Forex Charts

Identifying the Morning Star on forex charts involves more than simply identifying the three main candles. What is required, is an understanding of previous price action and where the pattern appears within the existing trend.

  1. Establish an existing downtrend: The market should be exhibiting lower highs and lower lows.
  2. Large bearish candle: The large bearish candle is the result of large selling pressure and a continuation of the existing downtrend. At this point traders should only be looking for short trades as there is no evidence of a reversal yet.
  3. Small bearish/bullish candle: The second candle is a small candle - sometimes a Doji candle - that presents the first sign of a fatigued downtrend. Often this candle gaps lower as it makes a lower low. It does not matter if the candle is bearish or bullish as the main takeaway here is that the market is somewhat undecided.
  4. Large bullish candle: The first real sign of new buying pressure is revealed in this candle. In non forex markets, this candle gaps up from the close of the previous candle and signals the start of a new uptrend.
  5. Subsequent price action: After a successful reversal, traders will observe higher highs and higher lows but should always manage the risk of a failed move through the use of well-placed stops.

how to identify a Morning Star pattern

How to Trade the Morning Star Pattern

The Morning Star pattern can be observed in the EUR/GBP chart below, where there is an established downtrend leading up to the formation of the reversal pattern.

Looking at the chart, once the formation has completed, traders can look to enter at the open of the very next candle. More conservative traders could delay their entry and wait to see if price action moves higher. However, the drawback of this is that the trader could enter at a much worse level, especially in fast moving markets.

Targets can be placed at previous levels of resistance or previous area of consolidation. Stops can be placed below the recent swing low, as a break of this level would invalidate the reversal. Since there are no guarantees in the forex market, traders should always adopt sound risk management while maintaining a positive risk to reward ratio.

trading the Morning Star EUR/GBP

When trading the Morning Star on forex markets, the price will very rarely gap like they do with stocks and so the three-candle pattern usually opens very close to the previous closing level.

How reliable is the Morning Star in Forex Trading?

The Morning Star, like most candlestick patterns, should be assessed in line with the current trend and whether there is supporting evidence in favour of the trade, when looking at an indicator. Below are the advantages and limitations of the Morning Star pattern:

Advantages

Limitations

Occurs frequently in the forex market

A failed reversal is possible and price could move further down

The pattern presents well-defined entry and stop levels

Morning Stars are easy to identify

Further Reading on Candlestick patterns

provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.