Morning Star Candlestick Pattern: A Strong Bullish Reversal Signal

What Is a Morning Star Candlestick Pattern?

A candlestick pattern is a way to read charts using candles that show open, high, low, and close prices. The Morning Star is a bullish reversal pattern. It appears after a series of falling prices and shows that the sellers are losing control and buyers are stepping in.

The Morning Star has three candles:

1. First candle – a long bearish (red/black) candle: continues the downtrend.

2. Second candle – a small body (could be red, green, or even a doji) that shows indecision. It often gaps lower from the first candle.

3. Third candle – a strong bullish (green/white) candle that ideally closes well into (or above) the midpoint of the first candle.

In short, Sellers dominate on Day 1, indecision on Day 2, and buyers take over on Day 3.

How to Recognize It (Structure & Rules)

Here are the key criteria to check:

• The trend before the pattern should be downward (a downtrend).

• The first candle should be sizable (strong downward move).

• The second candle’s body should be small, indicating the bears’ momentum is weakening.

• The third candle should open above (or around) the second candle and close well into the body of the first candle — ideally above the midpoint of candle 1.

• Higher volume on the third candle helps confirm strength.

If all of these match, you have a good Morning Star setup.

How Traders Use the Morning Star Pattern

Entry (When to Buy)

A common method is to enter when candle 3 closes above the midpoint of candle 1 (or above the high of candle 2). Some traders wait for the next candle to confirm.

Stop-Loss (Protect Yourself)

Set your stop just below the lowest point of the pattern — often the low of the second (middle) candle. This limits losses if the pattern fails.

Target / Profit Objective

You can project a target using:

• Recent swing highs/resistance levels

• The height of candle 1 (distance from high to low) is added above the breakout point

• Or use Fibonacci extensions for more precision

Use a risk-reward rule (for example, aiming for at least 1.5× or 2× your risk).

Why Morning Star Is Powerful & Its Limitations

Strengths

• It appears after a downtrend and visually shows a reversal of control from bears to bulls.

• Simple to spot even for beginners.

• Gives clear reference points for stop and entry.

Risks & Limitations

• It can give false signals in sideways or choppy markets.

• If volume is weak on the third candle, the reversal may not sustain.

• The pattern needs confirmation — never rely on it alone.

• In strong downtrends, the price may overshoot before reversing.

So always use other indicators like RSI, MACD, or support levels for confirmation. 

Example Walkthrough (Hypothetical)

Imagine stock ABC is in a downtrend.

• Day 1: ABC falls sharply (long red candle).

• Day 2: It gaps down but trades in a narrow range (small body).

• Day 3: It gaps up and closes above halfway of Day 1’s body with good volume.

You enter at the close of Day 3 (or next open). You place your stop just below the low of Day 2. You set the target using either prior resistance or the vertical length of candle 1.

If the price continues up, the pattern worked. If it reverses again and hits stop, you bail out with limited loss.