Star is a candle with a small real body, which forms the price gap with the prior candle with the bigger real body:
Morning and evening stars
It is required to have a gap between candle bodies (shadows may intersect). The color of the star does not matter. If the opening price of the star is at the same level as the closing price it is called a doji star.
Any star, especially a doji one, indicates that the trend may reverse. A small real body assumes that the fight between bulls and bears has reached a deadlock.
Stars reversal patterns:
In all the patterns star’s real body can be of any color.
The Morning Star pattern is a bottom reversal signal. It is formed as a candle with a long black body which is followed by a candle with a small body (a star), after a gap. The third bar is a white candle, which real body covers most of the prior black candle's real body:
The Morning Star
A tall black candle is a strong bearish signal. Then we see that a candle with a small body is formed - this means that bearish trend weakens. Bulls become more aggressive as strong white body is being formed. In the ideal pattern the gaps between real bodies should be both before and after the middle candle (a star). Although the second gap is a rare thing it does not make the pattern less effective. The main factor of importance is how deep the third candle pierces the first candle. Sometimes the pattern has more than one star.
The Evening Star is an opposite pattern to the Morning Star, and it has a bearish character:
The Evening Star
Intensifying factors for the Morning / Evening Star pattern:
In case of a doji star (a star with no real body, open price at the same level as close price) Morning Doji and Evening Doji stars are formed. This means that there is a strong signal for reversal:
Morning and Evening Doji stars
Trading contest live at the London Investor Show FOREX 24 February 2012
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