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A three-candle formation, morning and evening stars are extremely popular candlestick reversal patterns. Each is found in the midst of a strong trend and depicts a directional move in price, period of compression, followed by a reversal.

Morning/Evening Star Patterns

Morning Star Patterns

The Morning Star candlestick pattern is a reversal pattern, usually occurring at the bottom of a downtrend and indicating a bullish market trend. The pattern has three candles. The first candle is any long and bearish candle. The second candle is a small and indecisive candlestick with a gap down or gap up. The third candle is any long  bullish candle.

In the daily chart, we can understand that the sentiment of the market changes a lot. The bears are in complete control, which means the continuation of the selling pressure in the first place. However, the sellers fail to push the price lower, despite trying really hard. The price action ends up forming a quite small bullish/bearish or Doji candle.Eventually, the market reverses, with the overwhelming buying pressure.

Looking at the chart, once the formation has completed, traders can look to enter at the open of the very next candle. More conservative traders could delay their entry and wait to see if price action moves higher. However, the drawback of this is that the trader could enter at a much worse level, especially in fast moving markets.

Targets can be placed at previous levels of resistance or previous area of consolidation. Stops can be placed below the recent swing