At the bottom of a multi-day decline on EUR/USD, three candles lined up side by side and caught my eye at once. First a long red candle, as if the sell-off would never end. Then a small candle in which neither side settled anything. And finally a strong green candle that closed deep inside the body of the first. That is the morning star, one of the most eloquent reversal patterns in candlestick analysis.

What the morning star looks like and what it consists of

The morning star is a three-candle pattern at the bottom of a downtrend that signals a reversal to the upside. The first candle is long and bearish, a continuation of the decline in which supply still wins. The second is the star itself: a small-bodied candle which, in the classic description, opens on a gap below the close of the first. The third is long and bullish, and it closes high, reaching at least the midpoint of the first candle's body.

That last condition is the heart of the pattern. Until the third candle closes above the middle of the first, you have only a hint, not a confirmed signal. The colour of the middle candle matters little; what counts is its small body, the market's visible indecision. The textbook gap comes from the equity market, where a session has an open and a close; the currency market runs without a break from Monday to Friday, so a "star" on a EUR/USD chart is simply a small candle near the previous close. It is also worth accepting that the reading is discretionary: no rule says how small a body has to be to count as a star, and two people looking at the same chart will mark different setups. For a wider map of which candlestick patterns are worth knowing first, start with that piece.

Changing candle3 Open does not change penetration

We isolate two geometric measures, rather than classify a complete pattern. The first body has O1=110,C1=100. Both alternative third candles have C3=107.

Scroll sideways to see the full diagram

Third-candle body versus its Close locationCandle1 falls110→100. Two alternative third candles close107, but open99 or95. Their bodies8 and12 give the same70% penetration of the first body.LARGER BODY, SAME PENETRATIONFirstO3 = 99O3 = 95C3 = 107 in both versions.Candle3 body:8 or12 units.Penetration:(107−100)/10=70%.

Fictional units. Third A:O/H/L/C=99/108/94/107; B:95/108/94/107. First:110/111/99/100. Candle2 and historical length thresholds are unspecified, so no scanner result is assigned. TA-Lib CDLMORNINGSTAR compares candle3 Close with the first body for penetration, and checks candle3 body length separately.

The third candles are alternatives for one position, rather than consecutive periods alongside candle1.

Candle3 body increases8→12 as its Open moves down. Penetration stays(C3−C1)/(O1−C1)=7/10=70%. A longer green body alone does not prove a deeper close inside the first body. A scanner may separately check third-body length, penetration and historical lengths: changing one measure does not replace the others. This diagram establishes neither complete pattern qualification nor effectiveness.

The psychology: capitulation, indecision, rebound

The strength of this pattern comes from the clear story it tells in three acts. The first candle is capitulation. Sellers dominate, price drops, and the last discouraged holders dump their positions, so the decline looks set to deepen.

The second candle is the calm before the turn. Price is still hovering low, close to the previous session's finish, yet nothing gets settled during the session — the small body means supply has lost its momentum while demand has not yet seized the initiative. The third candle resolves the tension, as buyers return decisively, push price up and close deep inside the body of the first. The market has just changed hands.

“The morning star is a bottom reversal pattern. Its name is derived because, like the morning star that foretells the sunrise, it foretells higher prices.” — Steve Nison, Japanese Candlestick Charting Techniques, New York Institute of Finance, 1991.

The mirror image: the evening star

The morning star has its exact opposite at the top of a trend, the evening star. The structure is inverted: a long bullish candle, then a small star sitting high above the previous close, and finally a long bearish candle closing inside the body of the first. Where the morning star heralds sunrise and gains, the evening star foretells dusk and losses. I unpack the same logic, in the bearish direction, in the piece on the evening star and three rivers pattern.

Two variants are worth knowing. When the middle candle is a true doji, with an almost zero body, we have the morning doji star, and the signal is regarded as stronger. The extreme case is the abandoned baby pattern, in which the middle doji is isolated by gaps on both sides, a rare but prized formation.

How to trade the morning star step by step

Start with context. The morning star makes sense only at the bottom of a clear downtrend; without a prior decline the identical sequence means nothing. Then wait for confirmation. The close of the third candle above the middle of the first is necessary, but a cautious trader enters only at the open of the next candle, or after a break of the third candle's high, which screens out many false signals.

A protective stop loss is mandatory here, with no exceptions: a candlestick pattern says only that a certain scenario has become likely, and it shields the account from nothing. Put it below the low of the middle star, the lowest point of the pattern, since a move beneath it voids the rebound story. Set the target at the nearest meaningful resistance, drawn on the chart before you open the position. Then compare the two distances: if real resistance is closer than the stop, the trade is rarely worth the trouble, because even the scenario you called correctly pays less than the mistake costs. Reliability rises with a confluence of signals: if an oversold reading confirms the exhaustion of the decline in the same place, the setup is stronger, and I cover how to read the RSI indicator separately.

Let us follow a purely hypothetical, illustrative example. EUR/USD has been falling for several days. The daily candle opens at 1.0900 and closes at 1.0810, so the midpoint of its body falls at 1.0855. The next day the market starts practically where it finished, at 1.0808, dips to 1.0785 during the session and comes back to close at 1.0800. A body a few pips tall against a daily range of more than twenty is exactly what a star is: neither side managed to win anything. On the third day the candle sets off from 1.0800, reaches 1.0875 and closes at 1.0870 — above that 1.0855, which completes the condition of the pattern.

You do not enter at once. You wait for price to break the high of the third candle and place the buy order just above it, around 1.0880. The stop goes below the low of the star, say at 1.0780 — a hundred pips from the entry, and that is exactly what you are risking. The nearest clear resistance is the lower edge of the earlier consolidation at 1.0990, a hundred and ten pips above the entry. So the gain if you are right is slightly larger than the loss if you are wrong, but without any margin to forgive slippage on the order or a wider spread. These are example figures showing the method of calculation, not a recommendation — on your chart the levels will be entirely different.

The most common mistakes when trading the morning star

The first mistake is trading the pattern in isolation from the trend. Three candles of the right shape inside a consolidation are not a morning star, because there is nothing to reverse. The second is entering without confirmation, reacting to the third candle alone before price has cemented it, which ends in a run of false alarms.

The third mistake is rejecting a setup because it has no gaps in it. Since gaps on the currency market appear essentially only after the weekend, waiting for the textbook picture means you will never see a morning star at all. On forex a gap is a welcome bonus, not a requirement; what matters most is the close of the third candle above the middle of the first. The fourth is a stop set above the low of the star rather than below it, so the first flicker of price knocks you out of an otherwise sound position. The morning star is a close relative of other reversal candles, such as the engulfing pattern or the single hammer, all sharing the same logic of confirmation.

What to do tomorrow

  1. Open a daily chart and find three morning stars from the past. Mark each sequence of a long bearish candle, a small star and a strong bullish candle at the bottom of a clear decline, then check what happened next, to train your eye before risking capital.
  2. Write down your own definition of confirmation. Set it on paper that the third candle must close above the middle of the first, that you enter only after a break of the third candle's high, and that the stop sits below the low of the middle star.
  3. Pair the star with a second, independent signal. Check whether the pattern falls on support you drew earlier or whether an oscillator shows oversold, and treat the confluence of two clues as a condition for entry, because the candle alone is rarely enough.
  4. Practise the whole thing on a demo account for at least a week. Catch a few morning stars live, write out the entry, stop and target for each according to your rule, then tally the result, because only repeatability on a demo earns real money.

To place the morning star in a broader context of candlestick analysis, a good starting point is the technical analysis section in our library.