This presentation will describe a further two candlestick formations which often appear on the market and which could help investors in making everyday decisions in their investments.
• Morning Star
- What are the characteristics of the morning star formation?
+ Formation is made up of three candlesticks.
+ The first candle is a big black candlestick which continues the decrease trend.
+ The second candle is situated below the first one and has a small body. The color is not important. This candle shows the uncertainty on the market and the fight between the bulls and the bears.
+ The third candle, which is a white candle is situated above the second candle and breaks through around 50% of the first candle.
+ Appears on bottoms and signals trend reversal.
Although not mentioned in books, I have come to realize that the market tends to draw more than one candle in between the first and last one. The effect is the same and the formation is a signal to trend change.
• Evening Star
- What are the characteristics of the evening star formation?
+ Formation is made up of three candlesticks.
+ The first candle is a big white candlestick which continues the increase trend.
+ The second candle is situated above the first one and has a small body. The color is not important. This candle shows the uncertainty on the market and the fight between the bulls and the bears.
+ The third candle, which is a black candle is situated under the second candle and breaks through around 50% of the first candle.
+ Appears on tops and signals trend reversal.
As in the previous formation the market tends to draw more than one candle in between the first and last candle.
Examples:
1. This is a typical morning star formation.
2. Morning star formation where the white candle did not exceed 50% of the black candle signaling that the decrease trend may still not be over.
3. Morning star formation where the first candle has long shadows on the top and bottom.
4. Typical morning star formation.
5. Morning star formation with three candles in between.
What you should keep in mind is that not all formations will be bookish like. Investors should try to evaluate what the market is trying to show. On many occasions investors discuss which formation they are encountering. Remember that this is not important. It is not important to know how to call a certain formation, but how to interpret what we are seeing. This will take you some time and the best way to do this is actually observing the market live and evaluating your emotions at the time of the forging of any such formation.
Omar Arnaout
X-Trade Brokers Dom Maklerski S.A.
Omar.arnaout@xtb.com