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CDL_MORNINGSTAR (Morning Star)

Overview

The Morning Star is a three-candle bullish reversal pattern that appears at the bottom of a downtrend, signaling a potential trend change. Named after the planet Venus that appears before sunrise, this pattern represents the "dawn" of a new uptrend. The pattern consists of a long bearish candle, followed by a small-bodied candle (star) that gaps down, and completed by a long bullish candle that closes well into the first candle's body.

Parameters

Parameter Type Default Description
open Array Required Array of opening prices
high Array Required Array of high prices
low Array Required Array of low prices
close Array Required Array of closing prices
penetration Float 0.3 Minimum penetration into first candle's body (30%)

Parameter Details

Note: Array elements should be ordered from oldest to newest (chronological order)

OHLC Arrays - All four price arrays must have the same length - Minimum 3 candles required for pattern detection - More historical data provides better context for trend analysis

penetration - Controls how far the third candle must close into the first candle's body - Default 0.3 means 30% penetration required - Higher values (0.5) create stricter, more reliable signals - Lower values (0.2) create more frequent but potentially less reliable signals

Usage

Basic Usage

require 'sqa/tai'

open =  [50.0, 49.0, 47.5, 47.0, 48.5]
high =  [50.5, 49.5, 48.0, 47.5, 49.5]
low =   [49.5, 47.0, 46.5, 46.5, 47.5]
close = [49.0, 47.5, 47.0, 47.2, 49.0]

pattern = SQA::TAI.cdl_morningstar(open, high, low, close)

puts "Morning Star signal: #{pattern.last}"
# Output: 100 (bullish pattern detected) or 0 (no pattern)

With Trend Analysis

require 'sqa/tai'

# Historical price data showing downtrend
open =  [55.0, 54.0, 53.0, 52.0, 51.0, 50.0, 49.0, 47.5, 47.0, 48.5]
high =  [55.5, 54.5, 53.5, 52.5, 51.5, 50.5, 49.5, 48.0, 47.5, 49.5]
low =   [54.0, 53.0, 52.0, 51.0, 50.0, 49.5, 47.0, 46.5, 46.5, 47.5]
close = [54.0, 53.0, 52.0, 51.0, 50.0, 49.0, 47.5, 47.0, 47.2, 49.0]

pattern = SQA::TAI.cdl_morningstar(open, high, low, close)

# Check for pattern at end of downtrend
if pattern.last == 100
  puts "BULLISH REVERSAL: Morning Star detected"
  puts "First candle (bearish): Close #{close[-3]}"
  puts "Star candle (small): Close #{close[-2]}"
  puts "Third candle (bullish): Close #{close[-1]}"
  puts "Potential entry: #{close.last}"
  puts "Stop loss: #{low[-3..1].min}"
end

Understanding the Pattern

What It Measures

The Morning Star pattern measures: - Reversal Potential: Shift from selling pressure to buying pressure - Market Psychology: Transition from bearish sentiment to bullish sentiment - Support Formation: Price finding a bottom and rejecting lower levels - Momentum Shift: Bears losing control, bulls gaining strength

The pattern answers: "Is the downtrend exhausted and ready to reverse?"

Pattern Structure

The Morning Star consists of three distinct candles:

  1. First Candle (Bearish):
  2. Long red/black candle continuing the downtrend
  3. Represents final selling pressure

  4. Confirms the existing bearish momentum

  5. Second Candle (Star):

  6. Small-bodied candle (can be any color)
  7. Gaps down from the first candle's close
  8. Indecision candle showing momentum loss

  9. Can be a doji, spinning top, or small real body

  10. Third Candle (Bullish):

  11. Long green/white candle
  12. Closes well above the star candle
  13. Penetrates at least 30% into the first candle's body
  14. Confirms the reversal with strong buying pressure

Pattern Characteristics

  • Type: Three-candle bullish reversal pattern
  • Trend Context: Must appear in a downtrend
  • Reliability: High (especially with confirmation)
  • Frequency: Moderately rare (appears 1-2% of the time)
  • Best Timeframes: Daily, 4-hour charts (less reliable on very short timeframes)

Interpretation

Signal Values

The pattern returns specific signal values:

  • +100: Perfect Morning Star pattern detected
  • Three-candle sequence complete
  • All criteria met (gap, penetration, candle sizes)

  • Bullish reversal signal

  • 0: No pattern detected

  • Pattern criteria not met
  • Continue monitoring for pattern formation

Pattern Recognition Criteria

A valid Morning Star requires:

  1. Downtrend Context: Must occur after a price decline
  2. First Candle: Long bearish candle (large real body)
  3. Gap Down: Second candle gaps below first candle's close
  4. Small Body: Second candle has small real body (< 30% of first candle)
  5. Gap Up: Third candle gaps above second candle
  6. Bullish Close: Third candle closes into first candle's body (>30% penetration)
  7. Long Body: Third candle has substantial real body

Signal Interpretation

Strong Signals (High Probability): - Pattern appears after extended downtrend (20+ days) - Second candle is a doji (maximum indecision) - Third candle closes above the midpoint of first candle - Pattern confirmed by high volume on third candle - Support level nearby confirms the reversal zone

Moderate Signals: - Standard pattern with 30-50% penetration - Second candle is small-bodied but not a doji - Moderate volume increase on third candle

Weak Signals (Use Caution): - Pattern appears early in downtrend - Minimal penetration (<30%) - Third candle's body is relatively small - No volume confirmation

Trading Signals

Buy Signals

Primary Entry Signal: When Morning Star pattern completes with +100 signal:

  1. Confirmation Entry: Wait for next candle to close above the third candle's high
  2. Aggressive Entry: Enter at close of third candle
  3. Conservative Entry: Wait for pattern confirmation with RSI > 30 or above key support

Example Scenario: 

Stock in downtrend from $60 to $47 over 3 weeks.
Morning Star forms:
- Day 1: Close $47 (long red candle)
- Day 2: Close $46.80 (small doji, gaps down)
- Day 3: Close $48.50 (long green candle, 50% penetration)

Entry: $48.50-$49.00
Stop Loss: $46.20 (below pattern low)
Target 1: $51.00 (recent resistance)
Target 2: $54.00 (Fibonacci retracement)
Risk/Reward: 1:2.5

Confirmation Requirements

Strengthen the signal with:

  1. Volume Confirmation: Volume increases on third candle (20%+ above average)
  2. RSI Confirmation: RSI crossing above 30 from oversold territory
  3. Support Level: Pattern forms at known support or previous resistance
  4. Trend Indicators: MACD showing bullish divergence or crossover
  5. Next Candle: Following candle closes higher, confirming bullish momentum

False Signal Recognition

Avoid these weak patterns:

  • Shallow Penetration: Third candle barely enters first candle's body
  • Small Third Candle: Bullish candle lacks conviction (small body)
  • No Gap: Second candle doesn't gap away from first or third
  • Resistance Overhead: Strong resistance level immediately above pattern
  • Weak Volume: No volume increase on the reversal candle

Best Practices

Optimal Use Cases

Morning Star works best in:

  • Market Conditions: After extended downtrends with exhausted selling
  • Timeframes: Daily charts (most reliable), 4-hour charts (good), 1-hour charts (less reliable)
  • Asset Classes: Stocks and forex (excellent), cryptocurrencies (good but volatile)
  • Volatility: Normal to low volatility environments (high volatility creates false signals)

Combining with Other Indicators

Recommended combinations:

  • With Trend Indicators: Confirm downtrend with 50/200-day SMA before pattern
  • With Oscillators: RSI oversold (<30) adds confirmation to reversal
  • With Volume: Volume spike on third candle validates buying pressure
  • With Support/Resistance: Pattern at key support level significantly more reliable

Common Pitfalls

What to avoid:

  1. Trading Without Context: Pattern must occur in established downtrend, not consolidation
  2. Ignoring Volume: Low volume patterns have higher failure rates
  3. Premature Entry: Entering before third candle completes risks invalidation
  4. Missing Overhead Resistance: Check for nearby resistance that could stop the rally
  5. Over-trading: Morning Stars are relatively rare; don't force the pattern

Risk Management Guidelines

Proper risk management:

  • Stop Loss Placement: Below the low of the three-candle pattern (typically second candle)
  • Position Sizing: Risk 1-2% of capital per trade
  • Profit Targets:
  • First target: Recent swing high or resistance level (1.5-2R)
  • Second target: Major resistance or Fibonacci level (2.5-3R)
  • Trailing Stop: After 1:1 reward, trail stop to breakeven

Practical Example

Complete trading scenario with Morning Star:

require 'sqa/tai'

# Real-world downtrend scenario
historical_data = {
  open:  [62.0, 60.5, 59.0, 57.5, 56.0, 54.5, 53.0, 51.5, 50.0, 48.5, 47.0, 46.8, 47.5],
  high:  [62.5, 61.0, 59.5, 58.0, 56.5, 55.0, 53.5, 52.0, 50.5, 49.0, 47.5, 47.5, 48.5],
  low:   [60.0, 59.0, 57.5, 56.0, 54.5, 53.0, 51.5, 50.0, 48.5, 47.0, 45.5, 45.8, 46.5],
  close: [60.5, 59.0, 57.5, 56.0, 54.5, 53.0, 51.5, 50.0, 48.5, 47.0, 45.8, 46.0, 48.0]
}

# Calculate pattern
pattern = SQA::TAI.cdl_morningstar(
  historical_data[:open],
  historical_data[:high],
  historical_data[:low],
  historical_data[:close]
)

# Calculate supporting indicators
rsi = SQA::TAI.rsi(historical_data[:close], period: 14)
sma_50 = SQA::TAI.sma(historical_data[:close], period: 10)  # Using shorter period for example

# Analyze the signal
if pattern.last == 100
  current_price = historical_data[:close].last
  pattern_low = historical_data[:low][-3..-1].min
  first_candle_high = historical_data[:high][-3]

  puts "=" * 50
  puts "MORNING STAR PATTERN DETECTED"
  puts "=" * 50

  # Pattern details
  puts "\nPattern Structure:"
  puts "1st Candle (Bearish): O:#{historical_data[:open][-3]} C:#{historical_data[:close][-3]}"
  puts "2nd Candle (Star):    O:#{historical_data[:open][-2]} C:#{historical_data[:close][-2]}"
  puts "3rd Candle (Bullish): O:#{historical_data[:open][-1]} C:#{historical_data[:close][-1]}"

  # Confirmation checks
  puts "\nConfirmation Analysis:"
  puts "✓ Downtrend established: Price down from #{historical_data[:close][0]} to #{pattern_low}"
  puts "✓ RSI: #{rsi.last.round(2)} #{'(OVERSOLD - Strong confirmation)' if rsi.last < 35}"
  puts "✓ Pattern penetration: #{((historical_data[:close][-1] - historical_data[:close][-3]).abs / (historical_data[:open][-3] - historical_data[:close][-3]).abs * 100).round(1)}%"

  # Trading recommendation
  puts "\nTrading Setup:"
  puts "Entry Price: #{current_price} (on close of 3rd candle)"
  puts "Stop Loss: #{(pattern_low * 0.995).round(2)} (below pattern low)"
  puts "Target 1: #{first_candle_high.round(2)} (top of first candle)"
  puts "Target 2: #{(first_candle_high * 1.05).round(2)} (extended target)"

  risk = current_price - (pattern_low * 0.995)
  reward_1 = first_candle_high - current_price
  reward_2 = (first_candle_high * 1.05) - current_price

  puts "\nRisk/Reward Analysis:"
  puts "Risk per share: $#{risk.round(2)}"
  puts "Reward to Target 1: $#{reward_1.round(2)} (#{(reward_1/risk).round(2)}:1)"
  puts "Reward to Target 2: $#{reward_2.round(2)} (#{(reward_2/risk).round(2)}:1)"

  puts "\nRecommendation: #{(reward_1/risk) > 2 ? 'STRONG BUY' : 'MODERATE BUY'}"
  puts "="  * 50
else
  puts "No Morning Star pattern detected. Continue monitoring."
end

Similar Patterns

  • Evening Star: Bearish counterpart to Morning Star. Use Evening Star at top of uptrends, Morning Star at bottom of downtrends.
  • Morning Doji Star: Variation with doji as second candle. More reliable but less frequent than standard Morning Star.
  • Three White Soldiers: Another bullish reversal but requires three consecutive bullish candles.

Complementary Indicators

  • RSI: Use to confirm oversold conditions. Morning Star with RSI <30 is highly reliable.
  • MACD: Bullish MACD crossover with Morning Star provides strong confirmation.
  • Volume (OBV): Rising volume on third candle confirms buying pressure.

Pattern Family

Morning Star belongs to the Star pattern family: - Morning Star: Bullish reversal at downtrend bottom - Evening Star: Bearish reversal at uptrend top - Doji Star: Variations with doji candles (stronger indecision) - Abandoned Baby: Rare variation with gaps on both sides of star

Advanced Topics

Multi-Timeframe Analysis

Strengthen Morning Star signals with multiple timeframes:

  • Higher Timeframe (Weekly): Confirm overall downtrend context
  • Trading Timeframe (Daily): Identify Morning Star pattern
  • Lower Timeframe (4H): Fine-tune entry after pattern confirmation

Example: Morning Star on daily chart after 3-month downtrend + 4-hour chart showing bullish momentum = very high probability setup.

Market Regime Adaptation

Morning Star reliability varies by market condition:

  • Bear Markets: Most reliable (60-70% success rate). Downtrends provide ideal context.
  • Bull Markets: Less reliable (45-55% success rate). Downtrends are shallow corrections.
  • Ranging Markets: Moderate reliability (50-60%). Watch for true trend exhaustion vs. consolidation.
  • High Volatility: Lower reliability. Gaps and long candles are common, creating false patterns.

Statistical Validation

Morning Star performance metrics:

  • Success Rate: 60-65% when properly confirmed (50-55% without confirmation)
  • Average Gain: 5-8% within 1-2 weeks of pattern completion
  • Risk/Reward: Typically 1:2 to 1:3 with proper stop loss placement
  • False Signal Rate: 35-40%, higher in ranging or volatile markets
  • Best Markets: Most reliable in stocks and forex, less reliable in crypto

References

  • Nison, Steve. "Japanese Candlestick Charting Techniques" (1991) - Original English publication of candlestick patterns
  • Bulkowski, Thomas. "Encyclopedia of Candlestick Charts" (2008) - Statistical analysis of pattern performance
  • Morris, Gregory L. "Candlestick Charting Explained" (2006) - Comprehensive pattern interpretation guide
  • StockCharts: Morning Star Pattern
  • Investopedia: Morning Star Candlestick

See Also