Article Summary:Finding reversals of momentum may prove difficult for Forex traders. Today we will review price action tips using the Bullish Morning Star candle pattern.
One of the most coveted skills in trading is the ability to identify changes in market trends. While it may seem difficult at first, Forex traders can specifically benefit from identifying reversals through price action analysis and the interpretation of candlestick pattern. Once you have a few of the basic candle patterns memorized you can then begin working them into any active trading strategy. With this idea in mind, we will again focus on recognizing and trading one of the easiest identifiable candle stick patterns, the bullish morning star.
What is a bullish morning star?
A bullishmorning star pattern is a candlestick pattern normally found at the end of a period ofdownward market pressure. Pictured above we can see the pattern itself which iscomprised of three completed candles. The first candle will depict the end of the currency pairs established weakness. The size of this first candle can vary, but it is important for this candle to close creating a lower low.
Next traders will look at the second candle of the pattern to identify a bullish morning star. Price should attempt to dip here and create a slightly lower low relative to our first candle. However, a rally should prop price up closing the candle near the open for the day. More often than not, a doji can be seen in this position but the candle can close either blue or red in this position. This doji suggests that bearish price momentum is concluding and the end of bearish momentum. The last candle should show the beginning of fresh bearish momentum. While any bullish candle can complete the pattern, preferably traders will look for a large bullish engulfing candle here.
Learn Forex – GBPCAD with Bullish Morning Star
(Created using FXCM’s Marketscope 2.0 charts)
Uses in Trading
Once you are familiarized with identifying the bullish morning star pattern it can then readily be applied into virtually any trading strategy. Above is a great example of the pattern at work on a daily GBPCAD chart. The GBPCAD chart retraced from a previous high, ending in a highlighted morning star. After the completion of the third candle in the pattern, traders can reasonably assume the trend has turned back to its primary direction while looking for fresh opportunities to buy the GBPCAD.
As you can see candle patterns are a great way to interpret price action. However, keep in mind reversal patterns may symbolize a change of direction but not necessarily suggest a complete trend reversal. As always when working with any active market strategy, a stop order should be used with appropriate risk management for a traders account.
---Written by Walker England, Trading Instructor
To contact Walker, email email@example.com. Follow me on Twitter at @WEnglandFX.
To be added to Walker’s e-mail distribution list, CLICK HERE and enter in your email information.
New to the FX market? Save hours in figuring out what FOREX trading is all about.
Take this free 20 minute “New to FX” course presented by DailyFX Education. In the course, you will learn about the basics of a FOREX transaction, what leverage is, and how to determine an appropriate amount of leverage for your trading.
Register HERE to start your FOREX learning now!