The Morning Star is a bullish reversal pattern indicating a possible change in trend from bearish to bullish. It usually appears at the end of a market decline, symbolizing the start of a new buying phase. However, applying it mechanically can be a mistake; understanding market psychology is key to its correct interpretation.
How the Pattern Looks
The Morning Star consists of three candles:
First candle: A large bearish candle that confirms the dominance of sellers.
Second candle: Small, can be bullish, bearish, or a Doji, reflecting indecision.
Third candle: A strong bullish candle that closes at least halfway up the body of the first, signaling a potential reversal.
Pattern Psychology
Bearish strength in the first candle: Sellers dominate and sentiment is pessimistic.
Doubt in the second candle: Selling pressure slows down and uncertainty grows.
Control change in the third candle: Buyers enter strongly, indicating a possible trend reversal.
The Morning Star is a visual representation of the change in market sentiment, but using it without additional confirmations can be risky. Ideally, it should be combined with other technical indicators to make informed decisions. By understanding its psychology, traders can interpret it effectively and avoid false signals.
