The Morning Star is a candlestick pattern that appears in a downtrend and often indicates a potential reversal of the stock price from its bottom.
In technical analysis, the Morning Star is considered a bullish pattern.
The reason why it's called the "Morning Star" is because it looks like a new "sun" is rising on the chart after a period of low prices or a "morning."
The appearance of the Morning Star suggests that the price trend may reverse, and some investors may make corresponding trading decisions based on it.
In general, the Morning Star has the following characteristics on the technical chart:
The first day is a long bearish candle, indicating a downtrend and a stronger selling force.
The second day is a small bullish or bearish candlestick, like a cross, indicating market uncertainty and roughly balanced buying and selling forces.
The third day is a long bullish candlestick, with its body higher than half of the first day's body. The higher the third day's body, the stronger the uptrend, indicating a stronger buying force.
The Morning Star pattern usually appears at the bottom of a range.
If all four characteristics are met, it means that the Morning Star pattern has formed.
Let me give you a couple of examples to help you better understand the Morning Star:
On October 2, 2019, NVIDIA's stock price formed a Morning Star pattern at the bottom of the range, indicating a potential price reversal. Subsequently, NVIDIA's stock price continued to rise.
On December 24, 2018, after a series of declines, Amazon's stock price formed a Morning Star pattern (at the bottom of the range), indicating that the short-term selling had weakened, and the stock price might reverse. Amazon's stock price rebounded from the bottom in the following period.
After understanding these examples, here are a few points to keep in mind:
When judging whether the Morning Star pattern has formed, you should first confirm the technical pattern, which means it meets the above characteristics.
Confirm the trend: The Morning Star pattern usually appears after the price has fallen. To confirm the price reversal, you need to observe the subsequent price movement to see if it matches the expected direction. If the price continues to fall, the Morning Star pattern may not be valid.
Combine other indicators: The Morning Star pattern is just one technical indicator, and you should also consider other technical indicators (such as moving averages, RSI, etc.) or fundamental factors (such as company financial reports) to analyse and confirm.
Risk management: Even if the Morning Star pattern appears, the price reversal is not absolute. Therefore, you need to set a stop loss to avoid potential losses if the price continues to fall.
In summary, you need to consider multiple factors to confirm the validity of the Morning Star pattern and take corresponding risk control measures to avoid potential risks.
Technical analysis is only an auxiliary tool for stock trading, as no single indicator can be 100% accurate.
That's all about the knowledge of the Morning Star technical pattern!