The best Chartist figures

The Morning Star: A bullish reversal pattern

Structure of the Morning Star

The Morning Star is a three-candlestick figure that signals a potential bullish reversal after a downtrend. Its composition is as follows:

1. First candlestick A long bearish candlestick, representing strong selling pressure.
2. Second candlestick A small candlestick (often a Doji or Spinning Top), indicating hesitation or indecision in the market.
3. Third candlestick A long bullish candlestick, signalling a reversal and the resumption of buying pressure.

The key to identifying a Morning Star is to note that the second candlestick should be below the body of the first, creating a small "star" at the bottom of the structure.

Significance of the Morning Star

The Morning Star reflects a shift in dominance from sellers to buyers. It indicates that, although a downtrend is in place, the selling force is weakening and giving way to a bullish recovery.

Practical example

Let's imagine a chart of the EUR/USD. The price is in a downtrend, forming a Morning Star:

• First candlestick: A long red candle with a significantly lower close.
• Second candlestick: A Doji, indicating hesitation on the part of traders.
• Third candlestick: A long green candle closes above the middle of the body of the first red candle.

This signal may encourage a trader to consider a long position.

L'Étoile du Soir : Une Figure de Renversement Baissière

Structure of the Evening Star

The Evening Star is the opposite of the Morning Star. It's a three-candlestick pattern that signals a potential bearish reversal after an uptrend. Its components are as follows:

1. First candlestick A long bullish candlestick representing strong buying pressure.
2. Second candlestick A small candlestick (often a Doji or Spinning Top), indicating hesitation or indecision in the market.
3. Third candlestick A long bearish candlestick, signalling a reversal and the resumption of selling pressure.

As with the Morning Star, the second candelabra should sit above the body of the first, creating a "star" at the top of the structure.

Meaning of the Evening Star

The Evening Star reflects a shift from buyer to seller dominance. It indicates that, although an uptrend is in place, the buying force is weakening and paving the way for a downward correction.

Practical example

Let's take a chart of BTC/USD. The price is in an uptrend and forms an Evening Star:

• First candlestick: A long green candle with a significantly higher close.
• Second candlestick: A Doji or small candle indicating hesitation.
• Third candlestick: A long red candle closes below the middle of the body of the first green candle.

This signal may prompt a trader to consider a short position.

How to Use the Morning Star and the Evening Star in Your Trading Strategy

1. Confirmation with other tools : These figures are more reliable when confirmed by other technical tools such as support and resistance levels, RSI or moving averages. For example, a Morning Star appearing near a key support level carries more weight.

2. Risk Management : Always place a stop-loss to limit your losses. For a Morning Star, the stop-loss can be placed slightly below the lowest of the second candlestick. For an Evening Star, the stop-loss can be placed slightly above the highest point of the second candlestick.

3. Take-Profit : Set your profit targets based on support and resistance levels or other indicators, such as Fibonacci extensions.

Trading examples

Morning Star on GBP/USD

• Context: After a prolonged downtrend, GBP/USD is forming a Morning Star near a key support level.
• Action plan :
  • Entrance : Buy on market opening after confirmation of third bullish candle.
  • Stop-Loss : Placed slightly below the lowest point of the second candle.
  • Take-Profit : Placed near the next resistance level.

Evening star on DAX

• Context: After a sharp rise, the DAX is forming an Evening Star near a key resistance level.
• Action plan :
  • Entrance : Short selling after confirmation of the third bearish candle.
  • Stop-Loss : Placed slightly above the highest point of the second candle.
  • Take-Profit : Placed close to the next support level.

The Limits of the Morning and Evening Stars

Although these patterns are powerful, they alone do not guarantee success. False signals can occur, especially in highly volatile markets or in periods of low volume. Consequently, it's crucial to use additional confirmations and always adhere to rigorous risk management.

Conclusion

The Morning Star and Evening Star are effective tools for identifying trend reversals on the financial markets. Their three-candlestick structure offers a clear reading of market psychology, indicating the shift in dominance from one camp (buyers or sellers) to the other. By combining these patterns with other technical analysis tools, you can improve the accuracy of your trades and optimize your results.

We hope this article has helped you better understand these chartist figures. If you have any questions or experiences to share, don't hesitate to join the community on social networks with the hashtag #xenesy and identifying @xenesy_project. Happy trading!