• Direction: Bullish
• Type: Reversal
• Reliability: Strong
• After an established downtrend, day-one is a long red day
• Day-two is a short candle or Star candle.
• Day-three is a blue candle
Morning Stars start with a continuation of the bearish move. The second day sees a continuation of the move down, but a rally makes the market close at or near the open for the day. The first two candles weakly suggest a loss of bearish momentum. In fact up to day two this formation looks close to the Bullish Hammer moderate strength reversal pattern.
Although the example above appears red, day-two star candles can really be any color.
The Bullish Hammer alone is decent signals for a rally on day-three. But since the certainty for a Hammer indicator is low, the trend reversal should be confirmed by a blue candlestick the next day. The higher price is able to move up on day-three, the stronger the reversal signal.
With this pattern watch for rallies the following days.
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