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Written and copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved.
In my book,
Encyclopedia of Candlestick Charts  , 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.
Important Results
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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.
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 Morning Star
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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.
Identification Guidelines
| Characteristic | Discussion |
| Number of candle lines | Three. |
| Price trend leading to the pattern | Downward. |
| Configuration | Look 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. |
Three Trading Tidbits
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.
- Morning star candles that appear within a third of the yearly low perform best -- page 601.
- Select tall candles for the best performance -- page 601-602.
- Look for the morning star candlestick to appear in a downward retrace of the primary uptrend for the best performance -- page 603.
Example
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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