Star Gazing: Identifying and Trading Morning and Evening Star Patterns

If you’re involved in forex trading, then you’re always looking for new and innovative ways to identify profitable trades. One of the most reliable ways to do this is by identifying morning or evening star patterns.

In this post, we’ll teach you how to identify these patterns, and we’ll also give you some tips on how to trade them effectively. So, let’s dive in!

What Are Morning and Evening Star Patterns?

Morning and evening star patterns are chart patterns that are used in technical analysis to identify a possible reversal in the direction of a trend. A morning star pattern occurs at the bottom of a downtrend, while an evening star pattern occurs at the top of an uptrend.

A morning star pattern consists of three candles, while an evening star pattern consists of three candles as well. Both patterns consist of a large ‘star’ candle surrounded by two smaller candles.

The star candle in a morning star pattern is a large, bullish candle that gaps up from the previous candle. The two candles that follow the star candle are smaller and bearish, indicating a possible reversal in the previous downtrend.

Conversely, the star candle in an evening star pattern is a large, bearish candle that gaps down from the previous candle. The two candles that follow the star candle are smaller and bullish, indicating a possible reversal in the previous uptrend.

How to Identify Morning and Evening Star Patterns

To identify morning and evening stars, you need to follow these simple steps:

Morning Star Pattern

1. Look for a strong downtrend in price action.
2. The first candle in the morning star pattern is a long, bearish candle that closes near its low.
3. The second candle is a small, indecisive candle that gaps down from the previous candle and closes near its high or above the midpoint of the first candle.
4. The third candle is a long, bullish candle that closes near its high and gaps up from the second candle.

Evening Star Pattern

1. Look for a strong uptrend in price action.
2. The first candle in the evening star pattern is a long, bullish candle that closes near its high.
3. The second candle is a small, indecisive candle that gaps up from the previous candle and closes near its low or below the midpoint of the first candle.
4. The third candle is a long, bearish candle that closes near its low and gaps down from the second candle.

How to Trade Morning and Evening Star Patterns

Once you’ve identified a morning or evening star pattern, you need to know how to trade it effectively. Here are some tips to help you do just that:

Entry

The best time to enter a trade is when the star pattern is fully formed. Wait for the third candle to close and then enter the trade in the direction of the reversal.

Stop Loss

Place a stop loss below the low of the second candle in a morning star pattern or above the high of the second candle in an evening star pattern. This will help to protect your trade from losses in case the reversal doesn’t occur as expected.

Take Profit

There are a couple of ways to take profit when trading morning and evening star patterns. One way is to use a fixed target based on the height of the star candle. Another way is to use a trailing stop and let your profits run.

Risk Management

Always use proper risk management techniques when trading any pattern. Never risk more than 2% of your account balance on a single trade, and never trade without a solid trading plan in place.

Final Words

Morning and evening star patterns are reliable chart patterns that can help you identify potential reversals in the markets. By following the steps outlined in this post, you’ll be able to identify these patterns and trade them effectively.

Remember to always use proper risk management when trading any pattern, and never trade without a solid trading plan in place. With these tips, you’ll be well on your way to successful forex trading!