BULLISH MORNING STAR
Definition
This is a three-candlestick pattern indicating a significant bottom reversal. It consists of a black candlestick followed by a short candlestick that typically gaps down to form a Star. The third candlestick is white, closing well within the first session’s bearish body.
Recognition Criteria
1. The market is currently defined by a dominant downward trend.
2. We see a black candlestick on the first day.
3. Then, we see a short candlestick on the second day that gaps in the direction of the downtrend.
4. A white candlestick is observed on the third day.
Pattern Requirements and Flexibility
The Bullish Morning Star pattern begins with a black candlestick. This is followed by a short candlestick, which could be black or white and opens with a gap down. On the third day, a white candlestick appears, opening at or above the midpoint of the second day’s body and closing significantly into the range of the first day’s black candlestick. The third day’s closing price must reach the midpoint between the first day’s opening price and the second day’s lowest point.
Trader’s Behavior
A downtrend is in progress, with the black candlestick confirming its continuation. The short candlestick that opens with a gap down signals that the bears are still exerting downward pressure. However, the narrow range between the open and close on the second day indicates market indecision. The third day’s bullish candlestick penetrating the first day’s bearish candlestick signals a significant trend reversal.
Buy/Stop-Loss Levels
The confirmation level is set at the last closing price. For confirmation, prices need to surpass this level.
The stop-loss level is set at the lower of the last two lows. After a BUY signal, the stop-loss is triggered if prices decline instead of rising and either close below the stop-loss level or record two consecutive daily lows below it, without any bearish pattern being detected.