Morning Star
Key Takeaways
- 01.A three-candle bottom reversal pattern.
- 02.Candle 1: Long bearish; Candle 2: Small body gapping down; Candle 3: Long bullish closing deep inside Candle 1.
- 03.It signals a transition from selling panic (Candle 1) to indecision (Candle 2) to buyer control (Candle 3).
- 04.It is stronger if there is a volume surge on the third day.
Why it matters
The pattern shows a complete transfer of power over three days. The gap-down on the second day represents a final capitulation, but the failure to follow through followed by a strong recovery on day three shows a strong structural reversal.
When it matters
It is highly effective for identifying turning points in major indices or liquid stocks after a prolonged slide.
Three candles: a long red candle, a small-bodied lower candle, and a long green candle closing high.
Overlay a three-candle zone on the chart to trace the morning star transition.
Common Mistakes
Ignoring the close of the third candle
If the third green candle fails to close at least 50% of the way into the first red candle's body, the reversal is incomplete and selling pressure may persist.
📖 Real-World Example: A macro-economic reversal pattern
During a broader index decline in early 2020, the market capitulated on a heavy sell-off day (long red). The next day, it opened lower but traded flat (spinning top). The third day, it gapped up and closed positive, engulfing most of the first day's losses, marking the absolute bottom of the correction.