The morning star candlestick pattern is a bullish reversal pattern which is made up of three candles. The first candle is a strong bearish candle. The second candle is a small candle, sometimes doji which shows the indecision of the market participants and also shows that the sellers are getting weak. The third candle is a strong bullish candle which marks the trend change.

This candlestick pattern is a strong indication of the potential trend reversal. Traders use this pattern to set up stop losses below the doji or the bullish candle.

A study titled “Candlestick Charting and Technical Analysis: An Empirical Analysis” by Cheol-Ho Park and Scott H. Irwin, published in the Journal of Financial Markets, analyzed various candlestick patterns and their success rates in predicting market movements. According to their findings, the morning star pattern demonstrated a success rate of approximately 65% in forecasting bullish reversals.

📌 How to Identify Buy & Sell Using the Morning Star Pattern

The Morning Star is a bullish reversal pattern that appears after a downtrend. Here’s how traders understand the buy signal and trend change (up/down movement):

✅ Buy Signal – When to Enter the Trade

°After the third candle (bullish candle) closes above the midpoint of the first candle (bearish).

°This shows buyers have taken control and the downtrend is reversing.

°Confirmation: Entry is considered safer after the next candle also closes green.

📥 Buy Entry:

Right after the third candle or next bullish candle confirms the reversal.

📍 Stop-Loss Placement:

Below the lowest point of the second candle (Doji or small candle) or below the third candle's low.

🔻 Sell / Exit Strategy

°Target 1: Resistance level or previous swing high.

°Target 2: Use risk-reward ratio (e.g., 1:2 or 1:3).

°Exit the trade if price shows weakness or a bearish pattern forms.

°Before the pattern forms: Market is in a downtrend.

°After the pattern completes: The market starts an uptrend, indicated by rising candles.

So, when you see a Morning Star, you expect the price to go up — hence it’s a buy signal, not a sell.

📌 Example Summary:

° 🔻 Downtrend → 🚦 Indecision (Doji) → 🔺 Strong Bullish Candle

° 📈 Result: Reversal from Down to Up = Buy Opportunity

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