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Everything You Should Know About a Morning Star Pattern

18 Oct 2023

Introduction

In reading, trend reversal patterns are loved by traders. Morning Star is a trend reversal pattern that helps determine a future uptrend. It is made up of three consecutive Candlesticks. Hence, it is a visual trend indicator. In this blog, you will learn to spot a Morning Star pattern and a strategy to use during a Morning Star pattern.

What is a Morning Star Pattern?

A Morning Star occurs after a continuous downtrend in the market. Moreover, it leads to an uptrend, the opposite of the current trend. That's why it is called a trend reversal indicator.

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The market sentiment before the Morning Star appears is always bearish. The reason is that the market is following a downtrend. However, when the Morning Star appears, the bears lose dominance over the market, and the bulls come into play.

How to Spot a Morning Star Pattern?

As discussed above, a Morning Star pattern has three consecutive Candlesticks. All these three Candlesticks can easily be distinguished from each other. Here is the description of each Candlestick.

First Candlestick

The first Candlestick of this indicator sets a new low in the market. Hence, it is always a long red Candlestick.

Second Candlestick

The second Candlestick should look like a green or a red spinning top or a Doji. However, a Morning Star Pattern makes the green spinning top more evident.

Third Candlestick

The third Candlestick forms the confirmation of a trend reversal. It forms a long green Candlestick, indicating that bulls have gained market control.

What is the Psychology Behind a Morning Star Pattern?

The downtrend shows that the bears are continuously trying to set new lows. However, when it becomes hard for them to set new lows, bears predict that a trend reversal is coming. Due to this, you get to see a spinning top or Doji on the second day or, say, a less active day.

On the third day, the market control comes into the bulls' hands. Moreover, a continuous uptrend starts to follow from the third day.

What to Do When You Spot a Morning Star?

When you successfully spot a Morning Star, you should consider purchasing on the third day of the Morning Star indicator. Moreover, hold your purchases for the next few days until there's a sign of a downtrend.

Wrapping Up

If you spot a Morning Star, you should act instantly without waiting for the fourth day. However, it is important to calculate your risk appetite before going for a Morning Star, as it is an indicator that comes with chances and risks.

Now that you know what a Morning Star is, apply your knowledge and start trading today by opening a Demat Account with Motilal Oswal.

 

Related Articles:  Pullback Trading: Definition, Strategy and Risk Factors | Mastering Market Dynamics with the Williams R Indicator | Understanding the Sushi Roll Reversal Pattern

 

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