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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Morning Star

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Busted
Patterns
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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 07/25/2017
21,613 100.26 0.5%
9,489 61.28 0.6%
716 -3.16 -0.4%
6,412 1.36 0.0%
2,477 7.22 0.3%
YTD
9.4%
4.9%
8.5%
19.1%
10.6%
Tom's Targets    Overview: 07/14/2017
21,850 or 21,000 by 08/01/2017
9,950 or 9,400 by 08/01/2017
740 or 685 by 08/01/2017
6,450 or 6,175 by 08/01/2017
2,525 or 2,400 by 08/01/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

In my book, Encyclopedia of Candlestick ChartsEncyclopedia of Candlestick Charts book., pictured on the right, I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines in the tests.

The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines, performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators), and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy by clicking on the above link.

The morning star candles is one of my favorites. It acts as a bullish reversal frequently enough that I consider it reliable. The frequency rank of 66 is high enough that you can find examples of the candlestick after a determined search, and the overall performance rank is near the top of the list. That means the trend after the breakout is often a profitable one.

If you arbitrarily sell 10 days after the breakout, you will find that the morning star after an upward breakout is the weakest performer. However, just letting the trend end when it ends instead of imposing a time limit shows that upward breakouts have better post-breakout performance than downward ones. That tells me the trend after the breakout from a morning star takes a while to get going but it tends to keep moving up. Patience is probably a good word for what you need when trading this candle pattern.

Morning Star Important Results

Theoretical performance: Bullish reversal
Tested performance: Bullish reversal 78% of the time
Frequency rank: 66
Overall performance rank: 12
Best percentage meeting price target: 49% (bear market, up breakout)
Best average move in 10 days: -8.53% (bear market, down breakout)
Best 10-day performance rank: 3 (bear market, down breakout)

All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

The ideal morning star candlestick
Morning Star
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Morning Star Discussion

The morning star candlestick acts in reality as it is supposed to in theory: a bullish reversal 78% of the time. That ranks 6th where 1 is best out of 103 candlestick types. The overall performance rank is 12th, and that attests to the strength of the post breakout trend.

Drilling down into the data, we find that the best average move 10 days after the breakout is a drop of 8.53% in a bear market, ranking 3rd for performance. I consider moves of 6% or higher to be good ones, so this is near the best you will find. However, it is based on just 108 patterns. That may sound like a lot, and it is, but it falls well short of the 5,000 or more samples that I like to see. In short, expect the decline to be less severe as more samples become available.

Morning Star Identification Guidelines

CharacteristicDiscussion
Number of candle linesThree.
Price trend leading to the patternDownward.
ConfigurationLook for a tall black candle in a downward price trend. Following that, a small bodied candle of any color appears, one whose body gaps below the prior body. The last day is a tall white candle that gaps above the body of the second candle and closes at least midway into the body of the first day.
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Three Trading Tidbits the Morning Star

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book where the tips appear.

  1. Morning star candles that appear within a third of the yearly low perform best -- page 601.
  2. Select tall candles for the best performance -- page 601-602.
  3. Look for the morning star candlestick to appear in a downward retrace of the primary uptrend for the best performance -- page 603.

Morning Star Example

The morning star candlestick on the daily scale

The morning star candlestick appears circled in red on the daily scale. This one is in a downward price trend when the stock creates a tall black candle. The next day, a small bodied candle (the "star") gaps below the prior body. The following day a tall white candle signals the reversal of the downtrend when its body gaps above the star's body. Price breaks out upward when it closes above the top of the candlestick pattern.

This morning star candlestick acts as a bullish reversal of the downward price trend because price drops into the candle and exits out the top. Notice that the bottom of the candle stick pattern appears to be resting on a support zone created by the tall black candle that gaps downward in late July. Of course, such a support zone may not be noticeable until after the fact unless there is additional support hidden to the left of the chart.

For the best performance from the morning star candlestick, look for it when the primary trend is rising. Then the morning star appears as part of a downward retrace of that uptrend. When an upward breakout occurs, price joins with the rising price trend already in existence and away the stock goes like a child's helium balloon untethered.

-- Thomas Bulkowski

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See Also

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. My software never has bugs. It just develops random features.