A morning star is a bullish candlestick reversal pattern made up of three candlesticks. The pattern follows a decline, or down-trend.
The first candlestick is a relatively long black candlestick and forms in the same direction of the prevailing down-trend. This signals that the market is still very bearish toward the price of the security.
The middle candlestick is a doji or spinning top that forms after a gap down on the open. This signals indecisiveness in the market as the bulls have surfaced and the selling pressure has been eased off.
The last candlestick is a relatively long white candlestick. This signals that the indecisiveness in the previous day has been resolved and that a reversal to the upside is under way.
In the above example, prior to the morning star formation, the price was in a down-trend and very bearish. However, once the spinning top was formed, all the selling dried up and the market reversed to the upside the following day.
Chart Patterns Explained
Continuation Patterns
Reversal Patterns
Candlestick Patterns
