Morning Star & Evening Star Candle Stick Pattern

Morning Star Candlestick pattern

Technical analysts use the Morning Star pattern to identify a bullish reversal pattern in the chart. It is a strong candle stick pattern because it shows a shift in momentum from bearish to bullish. This usually forms at the bottom of a downtrend, indicating a potential up move.

Formation

It requires three candles for the formation of this type of pattern:

The first candle should be a long bearish candle indicating that the bears have control over the market. The second candle should be of a small body with long wicks/shadow with a gap-down opening & closing, which should not go above the closing price of the first candle. The psychology behind this candle is that it shows indecision in the market, meaning participants are not sure where the market will go next. Then comes the third candle, which is the last candle in the formation of a morning star pattern, and this should be a long bullish candle indicating that the bulls have entered into the market with a closing of at least 50% of the first candle.

How to trade this candle stick pattern?

Whenever you see this pattern, things to check:

1. It should form at the bottom of a downtrend.
2. The second candle should be a gap-down candle, irrespective of the colour of the candle. Mark the low of the candle as the stop-loss.
3. The third candle should be a strong bullish candle which confirms the pattern. Note that we will only consider taking an entry when the closing price of the candle is higher than the mid-point of the first candle.
4. Lastly, we will wait for the fourth candle to take an entry only if the closing price is above the high of the pattern.
   

The Morning Star pattern indicates that the bears have lost control and that the bulls are starting to take over. It is considered a strong signal of a potential trend reversal, and traders often use it as an entry point for long positions

Evening Star Candlestick pattern

Technical analysts use the Evening Star pattern to identify a bearish reversal pattern in the chart. It is a strong candle stick pattern because it shows a shift in momentum from bullish to bearish. This usually forms at the top of an up-trend indicating a potential down move.

Formation

Similar to a morning star pattern, this also requires three candles for the formation of this type of pattern:

The first candle should be a long bullish candle indicating that the bulls have control over the market. The second candle should be of a small body with long wicks/shadow with a gap-up opening & closing which should not go below the closing price of the first candle. The psychology behind this candle is that it shows indecision in the market meaning participants are not sure where the market will go next. Then comes the third candle, which is the last candle in the formation of an evening star pattern and this should be a long bearish candle indicating that the bears have entered into the market with a closing of at least 50% of the first candle.

How to trade this candle stick pattern?

Whenever you see this pattern things to check:

1. It should form at the top of an up-trend.
2. The second candle should be a gap-down candle irrespective of the color of the candle. Mark the high of the candle as the stoploss.
3. The third candle should be a strong bearish candle which confirms the pattern. Note that we will only consider taking an entry when the closing price of the candle is lower than the mid-point of the first candle.
4. Lastly, we will wait for the fourth candle to take an entry only if the closing price is below the low of the pattern.
   

The Evening Star pattern indicates that the bulls have lost control and that the bears are starting to take over. It is considered a strong signal of a potential trend reversal, and traders often use it as an entry point for short position.

Example

The above chart is a weekly chart of Nifty which has both the pattern with its entry and stoploss points marked.

The evening star pattern was formed in April 2022 which brought a significant correction in the market.

The morning star pattern was formed in March 2023 which initiated a start of an up-trend and the trend is still continuing.

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