Trading The Morning and Evening Star Candlestick Patterns

Four elements to consider for a morning star formation

1. A downtrend must be in place since a morning star is a bullish reversal pattern
2. The first candle should be a bearish candle, preferably longer
3. The second candle should be indecisive as the bulls and bears start to balance out over the session
4. ​The third candle should be a strong bullish candle, which practically all but confirms the reversal

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Although some analysts prefer to have a gap down, it is extremely rare to have gaps in Forex. Thus, many analysts argue that as long as these four conditions are met, it is a valid morning star pattern. 

It is important to note here that the second candle is the most important one. It can be bearish or bullish, as the focus is on indecisiveness and uncertain outcome as to which out of two sides will come out on top. 
 

The Evening Star formation

The evening star, on the other hand, has the same structure and it is also a reversal pattern. Unlike the morning star, the evening star occurs at the top of an uptrend and it signals a potential change in the price direction. 

All four conditions present in the morning star structure are valid here as well. Near the end of an uptrend, the first candle should be long and bullish, the second one should be at the top and signal indecision (green or red), while the third and final candle signals a reversal is starting, as the buyers are no longer in control over the price action. 

 

You can use the historic price action and analyze the structure and behaviour of the morning and evening star patterns on the Metatrader 5 trading platform, which you can access here.

Trading the morning star candlestick pattern

As said earlier, the occurrence of a morning star pattern is not as frequent as those of a single-candle formation. They are harder to spot, aside from you practically needing to fulfil all four conditions before you can verify its presence. 

 

In this case, we have the AUD/USD daily chart. The price had been trading lower until the point where it created a new short-term low. Prior to this candle, there is a long bearish candle that signals a strong downtrend.

However, the sellers fail to force a close near the session’s low and the price rebounds higher to create a doji candle, which signals the indecision among the buyers and sellers. The next candle is a long bullish candle which forms the morning star pattern. We can now be almost certain that the bullish reversal is about to start taking place.