The Concept of Morning/Evening Stars
The concept of Morning and Evening Stars is the concept that was developed in Japan as a part of the technical analysis and as such it has been accepted by the Western world in a very fast pace just like the techniques of candlestick these techniques are very efficient and they could be considered as an advantage for the trader.
Using Candlestick Charts
The first condition that needs to be considered by the traders is the fact that regards the charts and it says that the charts should be candlestick chart which means that traders should not look at the line bar or similar issue as this is applicable only to the candles. As you will be able to see in video material for our educational series on the Binary Options Education page, stars can be considered to be the group of three candles in the chart that acts as a reversal pattern.
Morning Start Pattern
In situations when the pattern that we are talking about appears after the trend of falling, that pattern is called the morning start in that case a trader should expect the bullish conditions. When it comes to the trading of binary options, in this case, traders should look to buy call options. In the case when the pattern is appearing after the trend of rising, that pattern is called the evening start and in that case, a trader should expect bearish conditions.
How to Identify the Morning Start Pattern?
When it comes to the Morning Star pattern, traders need to be able to recognize it when trading binary options. In the case of Morning Star pattern, the three candles that appear must be different. The first and the last candle in the group of three need to look almost the same with only difference being the color or the body. One is red and the other one is green or the first one is green and the third one is red. However, what makes the Morning Star pattern recognizable in this group of three candles is the middle candle that should be smaller than the other two. In the case of this candle, its body can be red or green and the color of its body is not really important for this issue.
After a trader has identified such pattern it is important for him or her to remember that when this pattern appears, the price will be formed immediately after the previous bearish or bullish trend which means that bullish or bearish conditions will not just simply disappear. This enables the trader to have the entry level for buying the call or put options as the trader is required to wait for the 50 percent third candle retracement to appear and to be in such level that would enable buying put or call options all depending on the type of the star that is being realized in front of you at that moment.
Both, the morning and the evening starts, are actually the reversal patterns and this is extremely important considering features of these patterns. During the forming of these patterns, the binary options market is creating a hard fight between bulls and bears.
Bullish Morning Start
After bullish morning star appears, the best option would be when the retracement would occur which would be the best possible moment for a trader to buy call options. In the case when the retracement does not appear after the star, it means that there is strong possibility that the market will come back at some time later and violently crush the lows. In that case, a trader needs to know that call options has to chances.
Very important issue for both star patterns when it comes to the third candle is the reversing in a way that any Fibonacci measurement should be implemented using its entire length. The normal levels of retracement are considered to be between 50 and 61.8 percent. Again, the Fibonacci levels are very important because they enable traders to find an ideal striking price that appears after the morning or the evening start patter has been formed in the chart.
Determining the Date of Expiration
The date of expiration depends heavily on the time frame in which the pattern of both starts appear and it seems that it does not worth anything because the bigger the time frame is, there is more possibility that the pattern will be stable. In the case when the morning or evening star appears on the five-minute chart, in the majority of cases, the market will come back and it will take the lows or the highs because these features are visible and everyone in the world will have the opportunity to see them.
At the Binary Options Academy we are attempting to cover some of the most important features and aspects of the Japanese candlestick techniques and after the bullish and bearish patterns of engulfing have appeared on the chart it is very likely that the morning or evening stars will appear. However, traders need to keep in mind that trading with morning and evening stars is not that easy as it sounds because identifying this pattern can be a bit tricky.
Evening Star vs Doji
One of the most confusion when it comes to these patterns is the issue of the size of the second candle. In these patterns, it needs to be very small and sometimes it can resemble the doji candle. Following the teachings of the Japanese candlestick techniques, the doji candle indicates the uncertainty and hesitation which shows that bulls when it comes to the evening start patter are starting to crumble down and the entire trend is appearing to lose the steam. These star patterns are very complex and they are part of the big reversal chapter of the chart analysis using the Japanese techniques.
A trader must have the chart in the trading platform that he is using set up in that way that the candlestick option is turned on otherwise that trader will not be able to see the candles. In the case when a trader does not see the candles he or she will not be able to see the patterns that are being formed in the chart because of the two remaining set up options for a chart, the bars and the lines. Many believe that Japanese have been using these patterns as part of their techniques much before the West came in with their technical analysis. When it comes to this issue you will have the opportunity to found out more from the video material that will be included in this article.
The concept of Morning and Evening Starts is the concept that was developed in Japan as a part of the technical analysis and as such it has been accepted by the Western world in a very fast pace just like the techniques of candlestick these techniques are very efficient and they could be considered as an advantage for the trader.
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References and Further Reading:
- Candlestick technical trading strategies: Can they create value for investors? (Ben R. Marshall, Martin R. Young, Lawrence C. Rose)
- Are candlestick technical trading strategies profitable in the Japanese equity market? (Ben R. MarshallEmail authorMartin R. YoungRochester Cahan)
- Trading Applications of Japanese Candlestick Charting (Gary S. Wagner, Bradley L. Matheny)
- Profitable candlestick trading strategies—The evidence from a new perspective (Tsung-Hsun Lu, Yung-Ming Shiu, Tsung-Chi Liu)
- Design and Evaluation of Automatic Agents for Stock Market Intraday Trading (Eduardo Jabbur, Everton Silva, Douglas Castilho, Adriano Pereira, Humberto Brandão)