How to Use Morning and Evening Star Candlestick Pattern in Trading

MORNING AND EVENING STAR PATTERNS

MORNING STAR

The morning star pattern is a three bar pattern that marks the end, or reversal, of a downtrend. The first bar is a long black body that indicates a continuation of the downtrend. The second bar features a small body, which can be either black or white, and gaps lower. The third day of the pattern shows a white body that closes well within the area of the first day’s black body. Figure 1.8 shows a basic morning star pattern.

FIGURE 1.8: BASIC MORNING STAR PATTERN

Figure 1.9 shows a candlestick chart for STI, which formed a morning star pattern on 04/13/07. STI had been in a downtrend and formed a large black body on 04/11/07. The following day, STI showed a small white body that gapped lower, and on the final day of the three day pattern, the morning star was completed by the formation of the large white body marked by the down arrow. The morning star pattern marked the end of the downtrend, and STI rose nearly 10% over the next few days.

FIGURE 1.9: MORNING STAR PATTERN IN STI ON 4/13/07              

EVENING STAR

The evening star is a three bar reversal pattern that may signal the end of a stock’s uptrend. The first candlestick in the pattern has a long white body, indicating the current uptrend is continuing. The second candlestick in the evening star pattern gaps up and then forms a small body. The distance between the open and close is not very large, as if the enthusiasm of the initial opening gap up cannot be maintained. The third candle in the pattern is a black candle indicating a reversal of sentiment, and the black candle must close at least halfway down the range of the first day’s candlestick. The basic evening star pattern is shown in Figure 1.10.

FIGURE 1.10: BASIC EVENING STAR PATTERN

Figure 1.11 shows a candlestick chart for ADBE, which was in an uptrend during April of 2006. The uptrend ended with the formation of an evening star pattern on 05/01/06. On the first day of the pattern, ADBE formed a long white bar, followed by a gap up and a narrow-bodied black bar on the next day. The pattern was completed on the third day, when ADBE formed a large black bar that closed well into the range of the first day. Following the formation of the evening star pattern, ADBE dropped more than 10% over the next few days.

FIGURE 1.11: EVENING STAR PATTERN IN ADBE ON 05/01/06