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The Morning Star in Forex Trading
The use of the Morning Star in Forex trading can lead to handsome profits. The Morning Star is a Japanese candlestick signal. Traders have gather years, decades, and centuries of data and learned that equity price patterns repeat themselves. When a trader uses the Morning Star in Forex trading he or she identifies a price pattern configuration that predicts the reversal of a downward trend and initiation of a bull market. Signals such as the Morning Star are easy to recognize and clear indicators of changes in market sentiment. As in our article in which we suggest that one anticipate Forex market reversal with the Doji signal it is important to recognize the signal and understand what is necessary for its successful interpretation.
A Morning Star Predicts a Brighter Day
Way back when Japanese rice traders invented candlestick signals the morning star, the planet Mercury, was considered a harbinger of better times. The three candlestick signal, the Morning Star, was likened to the plant in predicting that a falling market would reverse itself. The Morning Star in Forex trading consists of three candlesticks that present themselves at what turns out to be the bottom of a falling market. The downward trend is well established prior to the presence of the Morning Star signal.
The Morning Star Signal
The Morning Star starts with a long black candle which indicates a day in which the traded Forex currency closed significantly lower than it opened. The second candle has a bottom lower than the first which tells us that the currency gapped down on the opening of the second day. This candle is quite short which tells us that no matter how much trading took place that day the currency end up pretty much where it started. The third candle of the Morning Star in Forex trading is a white candle and a longer one. When this signal is very strong its bottom lies above the top of the second candle, indicating an opening trading gap for the day. The signal is even stronger if there is an upward gap on the subsequent day. To a degree the middle candle in this signal can be considered a Doji in that it is a very flat candle indicating market indecision. Because the market then proceeds to reverse itself this is also consistent with the Doji interpretation. The third candle should close at least at the level of the upper half of the first, black candle in order for this to be a Morning Star in Forex Trading.
What Does It All Mean?
As with other reversal signals the Morning Star in Forex trading tells us that a trend has run its course and is about to reverse, not just go into a flat line. This signal is a strong indicator of a change in market sentiment. The longer the black and white candles the stronger is the indication that market sentiment has swung around from bearish to bullish. As with all reversals of bear markets there are two possibilities.