The morning star is a bottom reversal pattern and has the following characteristics:
- it is being formed by a group of three candles;
- the first candle has an extended red real body;
- the second candle has a small real body that can actually be both red or green and this candle needs not to toucch the preior real body;
- the third candle is a strong green candle that usually go well into the territory of the first candle’s real body, showing bulls trying to take control.
The lowest low of this pattern, normally the low printed by the small candle in the middle should be support for any attempt market will have on the downside.
The morning start being a bottom reversal pattern then we would look for such a pattern when a market is falling and a trader is trying to find clues or reversal signals. Again, the higher the time frame this pattern appears on, the strongest the signal. Such a pattern should be taken into consideration only after the third candle is closed, so don’t try to jump into conclusions before the whole group of candles is completed. What I am trying to say is that if you are looking at such a pattern on the daily chart, then wait for the last candle to complete as sometimes right before the closing of the third candle market reverses and invalidates the pattern.
The recording that comes with this chapter shows you such reversal patterns on different time frames on the currency markets and how to deal with managing them when they appear