The morning star pattern can be recognised by traders as a bullish candlestick pattern. When it is used in conjunction with other prediction methods and signals, it can be taken as a good indication of a coming trend change. Consisting of three candles and formed at the bottom of a downtrend, it is a reversal pattern. In order for it to be a true morning star pattern it must demonstrate all of the following characteristics:
The first bar must be a large red candlestick which can be found within a clearly defined downtrend.
The second bar will be either a white or red small-bodied candle which will close below the initial red bar.
The third and last bar will be a large white candle, opening above the central candle and closing around the centre of the body of the first bar.
This pattern forms because in a downtrend, pessimism will cause heavy selling, thus forming the first candle of the pattern which is bearish and long. As indecision occurs between sellers and buyers, the second candle will form as a Doji, or small candlestick. There then follows a expectation of positive news from the market and this results in the formation of the third candle which is bullish and long. As stock price and volume increases, it is an indicator of a change in trend.When used in conjunction with other prediction methods and indicators, the evening star pattern can be helpful in identifying changes in trends.
What is the Evening Star Pattern in Binary Options Trading?
The evening star pattern is similar to the morning star pattern. Formed at the beginning of an uptrend, it is a reversal pattern and can be recognised as a bearish candlestick pattern made up of 3 candles demonstrating the following characteristics:
- The first bar will be a big white candlestick which is always located in an uptrend.
- The central bar is either a white or red small-bodied candle which will close above the initial white bar.
- The final bar will be a big red candle which opens under the central candle and closes close to the middle of the body of the first bar.
This pattern forms because in an uptrend, there is high optimism and this results in heavy buying which forms the initial candle which is bullish and long. Following this, there occurs indecision between sellers and buyers resulting in the formation of the second, central candle which is a Doji, or small candlestick. After this, there follows an expectation of receiving negative news from the market and thus the third and final candle forms which is bearish and long. As price decreases and volume increases, this indicates a change in trends.
How can the Morning and Evening Star Patterns be Used to Make Profit?
Both the morning and evening star patterns are vital for identifying changes in trends. While the Morning Star is a clear indicator to buy, the Evening Star is a signal to sell. However it is always sensible to use several different indicators and patterns in order to determine a clear trading strategy. In the case of a Morning Star pattern, traders are not recommended to act straight away that they spot the bullush reversal pattern forming on the chart as it makes sense to wait for a short period. Typically, following this pattern, the price will start to rise and then eventually rest forming a price area which is the perfect time for a fresh trade. In the case of trading an Evening Star Pattern, a trader could take a conservative approach, waiting until the first candle has been entirely wiped out and broken below, however when seen at the top of uptrends, an appearance of the Evening Star pattern is a fairy powerful trade signal.
Other educational articles
- Head And Shoulders Patterns
- Bullish And Bearish Engulfing Patterns
- Gain Using Wedges In Binary Options
- Fibonacci Retracements
- Trading The Flag Pattern In Binary Options Strategy
- Ascending Triangle Strategy
- Introduction to stocks (Khan Academy economy lessons)
- Technical Indicators (Investopedia – Active Trading)