Morning star pattern

A morning star is a three-candle reversal pattern. The first candle is a long bearish candle. The second has a small body and sits around the first one's low; that's the star the pattern is named after. The third is a long bullish candle that takes back at least half of the first candle's body.

The three candles tell a story in order. First sellers are in control and push price down hard. Then the small candle arrives: selling has slowed and both sides hesitate for a while. Finally buyers step in and reclaim much of the first candle's loss. Night ends and morning comes, hence the name.

If the middle candle is a doji, the pattern is called a morning doji star, and it reads slightly stronger because the indecision is clearer. Whatever the variant, a morning star isn't a signal on its own. It needs to form at the end of a decline and at a clear level to mean something.

Measure each candle. On a 4-hour GBPUSD chart, say the first candle opens at 1.2780 and closes at 1.2730: a bearish candle with a 50-pip body. The second opens at 1.2728, drops to 1.2712, rises to 1.2738 and closes at 1.2724: a body of just 4 pips. The third opens at 1.2726 and closes at 1.2766: a bullish candle with a 40-pip body.

Now check the rule. The midpoint of the first candle's body is 1.2755. The third candle closed at 1.2766, above that midpoint. All three conditions hold: a long bearish candle, a small star, and a bullish candle reclaiming more than half of the first body. That's a morning star.

Textbooks want the star separated from the candles around it by a gap. In stocks that's common. Forex trades around the clock, so intraday gaps are rare; there, a small-bodied star sitting at the low is usually accepted as enough.

Then look at the location. Does the star's low line up with support, a previous low or the bottom of a range? The logical stop sits a little below the pattern's lowest point, the star's low. With the low at 1.2712, the stop goes near 1.2709. Buying the third candle's close at 1.2766 means 57 pips of risk; that distance is your 1R.

Counting the pattern before the third candle closes. A long bearish candle followed by a small one is just two candles. The third can open higher and fade back by the close. A morning star only exists once the third candle closes strong.

Accepting a weak third candle. A green candle with a small body that doesn't even reach the midpoint of the first body doesn't show buyers taking over. The textbook rule isn't decoration; it's the story itself: buyers have to win back at least half of what sellers took.

Ignoring the stop distance. Because the pattern spans three candles and the entry comes near the top of the third, the stop is long. In the example it's 57 pips. Enter with the size you'd use for 20 pips and you nearly triple your risk on one trade. If the distance is long, shrink the position; don't pull the stop above the star's low.

In the middle of a sharp downtrend, a morning star that touches no level is usually just a bounce. If the higher timeframe keeps printing lower highs, the third candle's rally may be a short breather before the next leg down.

On small timeframes and in quiet hours, three-candle sequences are everywhere. On a 1-minute chart, with price twitching a few pips, it's easy to find something that looks like a morning star, and most of them say nothing.

If price closes below the star's low, the pattern is void; sellers have taken the low back. Check the room above too. If the third candle closed just under resistance, there's little space to go. A 57-pip stop against a first obstacle 30 pips away is under 1R before the trade starts.