The Morning Star pattern: peculiarities of use
The Morning Star pattern is a type of Japanese candlestick. Its chart allows you to track price changes and read trading signals.
The appearance of this formation can indicate a price reversal. In this case, it goes up and predicts the imminent completion of the bearish cycle. The pattern consists of three figures:
– a large candlestick, which indicates bearish signals;
– a small candlestick located in the middle of the chart;
– a large candle – an upward movement (usually bullish) confirming the trend reversal.
Primary support levels are the basis of the pattern trading strategy. In this case, traders set their targets at the nearest resistance levels.
The Morning Star differs from other similar patterns in its shape. The pattern usually consists of three candlesticks, where the middle candle has a small body and sits between the other two candlesticks, forming a kind of “star”. This pattern usually appears after a downward movement in the market and signals a possible trend reversal. A second gap can sometimes occur between the first and third candlesticks, indicating the strength of the chart and confirming the likelihood of a trend reversal.
A variety of trading strategies can use this pattern. It is suitable for traders who prefer scalping, intraday or long-term trading.
Advantages and disadvantages
Morning Star is a typical pattern. It has been in use in various financial markets and time frames. The pattern is easily identified on charts and has specific rules for entering a trade and setting a stop loss. Its main advantage is that it allows a trader to open a long position at the beginning of a bullish trend. This allows the broker to trade at the best possible conditions.
Despite the advantages, Morning Star also has its disadvantages, which include:
– older timeframes give a stronger signal;
– on small timeframes, there is a risk of high market noise;
– the latter can lead to false signals, which reduces trading efficiency;
– the pattern requires the use of additional tools for confirmation.
In most cases, traders confirm the signals using other candlestick patterns or technical analysis indicators.
The formation’s accuracy depends on the number of confirmations. The buy signal will be more stable with the action of the older timeframe. The action of the shorter timeframe should be used in conjunction with a large number of confirmations. In this case, there is a risk of not seeing a favourable opportunity to enter the market.
An important point when using a pattern is to identify it correctly. The pattern forms at the end of a downtrend. In addition, the first candle should be exclusively bearish. At the same time, there must be a particular gap between the first and second candlesticks. As with any technical pattern, you will have to use this pattern with other analysis tools to make an informed trading decision.
