Technical Analysis

Morning Star

What is a Morning Star?

  • A bullish three period candlestick formation that consists of…
    • a long red candle followed by…
    • a small red or green candle (or doji) that gaps below the close of the previous candle followed by…
    • a long green candle (stronger signal if gaps up)
  • A leading short-term reversal indicator
Morning Star Morning Doji Star

Why is a Morning Star important?

  • The red candlestick confirms that the downtrend remains intact and bears dominate.
  • When the second candlestick gaps down, it provides further evidence of selling pressure.
    • The small candlestick indicates indecision and a possible reversal of trend. If the small candlestick is a doji, the chances of a reversal increase (referred to as morning doji star).
  • The third long green candlestick provides bullish confirmation of the reversal.

So how do I use it?

Since morning stars are signals of a potential bullish reversal after a downtrend they are helpful in confirming a significant bottom especially when found near support. They are most useful in stop-loss placement with stops typically placed just below the completed formation.

Example 1 – EUR/AUD, 2min (1-23-2009)

Morning Star Chart

In the above example we have two completed morning star formation which are followed by bullish market reversals.