Understanding Price Action - The Morning Star Candlestick Pattern

Let's take a look at a common bullish reversal pattern: the Morning Star. This pattern typically forms after a downtrend and signals a potential shift in momentum from sellers to buyers. It's a three-candlestick formation.

First, you'll see a large bearish candlestick, confirming the ongoing downtrend. The second candle is usually small, often a Doji or spinning top, indicating indecision in the market; it might have a gap down. This second candle represents the 'star' and suggests selling pressure is waning. Finally, the third candlestick is a large bullish candle that closes well into the body of the first bearish candle, confirming the reversal. For instance, if $ADBE had been trending down and formed this pattern around its daily low of 262.14 before rallying strongly to 273.13, it would be a classic example of this signal.