How to identify and trade morning and evening star pattern - Profitable-Forex-Strategy

How to identify and trade morning and evening star pattern

giao dich truc tuyen chung khoan 1 1024x576 - How to identify and trade morning and evening star pattern

Candlestick patterns are one of the best ways of identifying entry points when trading Forex. Among some of the commonly used candlestick patterns are the morning star and evening star candlestick patterns. The two patterns indicate the onset of a market trend and if correctly identified, the trader can make good profits.

Both the morning star and the evening star patterns comprise of a doji or any other reversal candlestick and a candlestick on either side of the doji/reversal candlestick.

Morning star candlestick pattern

The morning star pattern forms at the end of a gloomy bearish trend. Its formation signals the end of a bearish trend and the onset of an uptrend.

It consists of a reversal/doji candlestick sandwiched between a previous bearish candlestick and a succeeding bullish candlestick.

Morning star candlestick pattern

The doji candlestick shows a contention between the bullish and bearish pressures. But the bullish candlestick that forms after the formation of the doji or spinning candlestick confirms the direction into which the market prices decide to break out.

In case the middle candlestick is not a doji; meaning it is a reversal candlestick, then its color can be that of a bearish trend or bullish trend depending on the color that the trader has set. Remember a doji has a body that is black since the candle closes at the same market level that it opened at.

Evening star candlestick pattern

The evening star pattern forms at the end of a bullish trend. Its formation signals the end of a bullish trend and the beginning of a bearish trend.

It consists of a spinning or doji candlestick sandwiched between a previous bullish candlestick and a succeeding bearish candlestick.

Evening star candlestick pattern

The doji candlestick shows a contention between the bullish and bearish pressures. But the bearish candlestick that forms after the formation of the doji or spinning candlestick confirms the direction into which the market prices decide to break out.

Just as is the case with morning star pattern, in case the middle candlestick is not a doji; meaning it is a spinning candlestick, then its color can be that of a bearish trend or bullish trend depending on the color that the trader has set.

Placing orders using the morning and evening star patterns

  • Morning star

The morning star gives an indication of the onset of a bullish trend. Thus, the trader should prepare to place a buy order after identifying its formation.

However, the trader should wait for the formation of another bullish candlestick. This means that the buy order should be placed at the opening of the third candlestick counting from the formation of the doji or spinning candlestick.

  • Evening star

The evening star gives an indication of the onset of a bearish trend. Therefore, the trader should prepare to place a sell order after identifying its formation.

However, the trader should wait for the formation of another bearish candlestick. Meaning, the sell order should be placed at the opening of the third candlestick counting from the formation of the doji or spinning candlestick.

Exiting the orders placed using the morning and evening star patterns

One of the things that a trader has to put in mind is that it is not a must that the morning star will form at the end of a trend that was started by an evening star or vice versa.

Therefore, a trader should not wait for an opposite pattern to form for him/her to exit a trade; i.e. a trader should not expect a morning star to form so as to close an order he placed after the formation of an evening star.

To make the most out of the morning star and evening star patterns, it is advisable to use stop loss and take profit levels or else find a technical indicator like the moving average or MACD to help identify any instance of a change in the market trend. The trader should be keen to avoid closing the order too early or too late. If the order is closed too early, then he/she will have denied himself/herself the chance to make more profits. On the other hand, if an order is closed too late, the change in the market trend could start eating into the profits.

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