Understanding morning star
When the market is in a downtrend it makes successive new loss during this period The bulls are in absolute control On the first day of the pattern the market makes a new low and forms a long red candle which indicates selling acceleration
When the market is in a downtrend it makes successive new loss during this period. The bulls are in absolute control. On the first day of the pattern the market makes a new low and forms a long red candle which indicates selling acceleration. On the second day, the bears still dominate the market with gap down opening. After the gap down opening there is no significant change resulting in the formation of a doji candle.
On the third day, the markets open with a gap up followed by a blue candle which manages to close above red candle opening which is formed on the first day. Besides, on the third day there is a gap up opening and the bears would be a bit jittery. Encouraged by the gap up opening there will be a lot of buying activity. The bullish pattern on the third day is likely to continue the next few trading sessions and therefore there is lot of buying opportunity in the market. Hence, there is a lot of trade on the third day.
The lowest low in the pattern would act as a stop loss for the trade. So, whenever a morning star is observed, a long trade can be initiated on the third day at the closing time of the market.
There are three prerequisites for a morning star.
1. On day one of the pattern the candle should be long bearish candle.
2. On the second day, there should be a gap down opening and there should be a doji candle.
3. On the third day, there should be a gap up opening.
The market price before closing time should be higher than the opening price of the stock on the first day. (The author is a homemaker who dabbles in stock market investments in free time)