We will only be looking at the morning star and evening star candlestick patterns.
Before we can understand the morning star pattern we must first understand two common price behavior - gap up opening and gap down closing. Gaps, which can be used to refer to both gaps up or down, are a common price behavior. Daily chart gaps occur when the stock closes at a certain price and opens the next day at a different one.
Gap -An open gap indicates buyer Excitement. Buyers will buy stocks at a higher price than the closing day. The stock (or index) will open at a higher price than the previous day because of the optimistic buyer's outlook. Consider, for example, that the closing price at ABC Ltd on Monday was Rs.100. Assume ABC Ltd will announce their quarterly results after the market closes Monday. The numbers are so impressive that buyers will buy stock at any price Tuesday morning. The stock price would rise to Rs.104 immediately due to this enthusiasm. The stock price jumped to Rs.104 despite there being no trading activity between Rs.100 & Rs.104. This is known as a gap-up opening. This is bullish sentiment.
Gap down openingA gap down opening is similar to a gap up opening. It shows the bears' enthusiasm. Because bears want to sell, they will sell at a lower price than the closing price of the previous day. If the quarterly results are poor, sellers will want to sell the stock. Therefore, Tuesday's market could open at Rs.95 rather than Rs.100. The stock plunged to Rs.95 even though there wasn't any trading activity between Rs.100 & Rs.95 in this instance. A gap down opening is a sign of bearish sentiment.
The first thing is the Morning star underlies within the bullish candlestick pattern and It is a downtrend reverse pattern. This pattern is created by combing 3 consecutive candlesticks. The bottom of a downtrend's downward trend is where the morning star appears.
Three candlesticks are used to create the morning star pattern. They are arranged in a specific order. The chart below shows the pattern. Here's how the morning star was created:
Both the risk-averse and risk-taker traders can open trades on P3, unlike the single or two candlestick patterns. Trading based on a morning Star pattern may not require waiting for confirmation on the fourth th day.
This is the long trade setup for a morningstar:
The evening star is one of the last candlestick patterns we will learn in this module.
The evening star, which is the bearish equivalent to the morning star, is also known as the evening star. The evening star is at the top of an uptrend. The evening star, like the morning star and the three-leaf formation of the morning star, evolves over three trading sessions.
These are the reasons you should not go for an evening star:
This is the trade setup for an evening star:
Let's briefly summarize the entry/stop loss rules for short and long trades before we close this chapter. We have not yet covered the trade exit (aka targets) in the candlesticks study. In the next chapter, we will.
Risk-taker – The trader who takes a risk is the one who enters on the last day in the pattern formation at the closing price. If the pattern rules are valid, then the trade qualifies.
Ridiculous - A risk-averse trader will open the trade once he has received confirmation the next day. The candle's color should be either blue or red for long trades.
It is a good rule of thumb to start a trade the same day as the pattern has been in existence for a greater number of days.
A long trade has a stoploss that is equal to the pattern's lowest low. A short trade has the highest stoploss.
We've looked at 16 candlestick designs.
Non, really. There are many candlestick patterns. I could explain them all, but that would be defeating the ultimate goal.
Understanding and recognizing that candlesticks can be used to think about markets is the ultimate goal. It is not necessary to be able to recognize all patterns.
Consider car driving. Once you are able to drive a car, you don't need another car. Driving a Honda is the same thing as driving a Hyundai, Ford or other car. No matter what car you drive, driving is easy. It doesn't matter what car you drive. Your mind will learn to interpret the thought process behind a candlestick. Based on what chart you see, you will be able to identify how to react and place trades. You will need to learn and trade the standard patterns to get to this stage.
My advice is to learn the patterns we have discussed. These are the most profitable and frequent patterns that you can trade on the Indian market. You can start to develop trades that are based on the thinking behind the bears' and bulls' actions. This is the best way to learn candlesticks.