Candle Reversal Patterns

The bullish morning star is a great candle pattern for establishing a long, while also looking for a confirmation in a trend reversal.

Looking at the chart below, we see the setup as follows:

  • Day one of the pattern consists of the bearish day (prior to the green arrow) where traders are capitulating and forcing the pattern down.
  • Day two (green arrow) we see a doji, where the close shows traders in a battle ultimately ending with recognizable indecision. Bears do not win. Bulls do not win.
  • Day three we see bulls take charge.
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Pairing the morning star candle pattern with the moving average we know that "fair value" is at the MA. This is the 20 day average of the fair price, so we expect prices to eventually move
back into equilibrium and reverse back to the MA.

Adding to our recognition of the morning star we overlay the chart with trend lines. I like to use candle patterns for buy and sell signals. Recognizing a bullish candle reversal pattern inside a chart pattern is one of the simplest forms of technical analysis.

Look at the chart below.
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The evening doji star is a bearish pattern when it occurs at the top of a trend. Look for a reversal in the third candle. Entry short would be on the third candle after price moves below the low of the day put in by day two, the doji.

Looking at the chart below, we see the setup as follows:

  • Day one of the pattern consists of the bullish day (prior to the red arrow) where traders are excited and forcing the pattern upward.
  • Day two (red arrow) we see a doji, where the close shows traders in a battle ultimately ending with recognizable indecision. Bears do not win. Bulls do not win.
  • Day three we see bears take charge.

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Candle patterns are often overlooked in a new traders quest to become a better trader. Recognizing these basic building blocks will assist you to become a better trader and increase your odds of finding more winning trades.

The bullish morning star is a great pattern for establishing a long, while a bearish evening star is great for establishing a short, both utilized when looking for a confirmation in a trend reversal.
About Cousin Vinny
Cousin Vinny is the internet pseudonym for TLLeBlanc, Architect who started trading in 1987. Practicing Architecture for over 30 years, Mr. LeBlanc found the technical aspects of building, design and construction prepared him well for fundamental and technical analysis.

He is a family man, a native of New Orleans, currently residing in New Jersey.
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We have a simple mission. We wish to make profitable trading and investing a core part of every "newbie" trader.

Knowledge is power and with trading, being able to act quickly, with forethought is a critical component to success.

We wish to educate new traders in the process of recognizing and executing high probability setups, entries and exits.