ASX Charting Course

Chapter 49 Candlesticks

Formations VI

Three Candle Formations

Morning Star

The Morning Star formation requires three candles to create the formation. It signals a trend reversal, complete with confirmation. As the name implies this formation signals a low or a base forming in the market. It therefore requires a well defined down trend.

The first real body of the formation should be quite strong and therefore should have a tall real body.

The second candle is likely to have a narrow body the direction of which is irrelevant. The second candle occurs in a star position, in which case it appears as an isolated candle having gapped down at the open.

The third candle in the formation, the confirmation candle, should penetrate higher, at least half way, into the real body of the first candle.

Fig 84

Morning Doji Star

The diagram below is identical to that above except for the second candle in the formation. It is a Doji where the open and closing prices are the same.

Fig85

The Evening Star

The Evening star formation is also a three candle formation that occurs usually at the top of an uptrend. It signals a top in the market, the end of the up trend and the reversal of that trend. It is the inverse of the Morning Star formation.

It is a requirement of the Evening Star formation that a clear uptrend can be identified. The first candle must be a strong up candle with a tall body.

The second candle should have a higher opening and a small real body, if any at all as in the case of a Doji. Once again it doesn’t matter whether the candle is white or black, up or down. The size of the body or the lack of a real body should be enough to render the direction of this particular candle in the formation largely irrelevant.

The third candle is the confirmation of a change in trend and its real body should push at least half way into the real body of the first candle.

Fig 86

Evening Doji Star

The star position refers to the isolation of a bar, above or below the recent activity of the market. It is defined essentially by the gap open and in the case of the Doji formation this is the same price as the close.

The Doji increases the potential and possibly the strength or impact of the reversal signal.

Fig 87

Craig MacLean is a Futures Adviser Licensed under the Australian Securities Commission, Corporations Law. The writer accepts no responsibility for any losses incurred from any action or inaction derived from the advice in this report.



ASX Charting Course
Chapter 49 Candlesticks Formations VI
Three Candle Formations
Morning Star The Morning Star formation requires three candles to create the formation. It signals a trend reversal, complete with confirmation. As the name implies this formation signals a low or a base forming in the market. It therefore requires a well defined down trend. The first real body of the formation should be quite strong and therefore should have a tall real body. The second candle is likely to have a narrow body the direction of which is irrelevant. The second candle occurs in a star position, in which case it appears as an isolated candle having gapped down at the open. The third candle in the formation, the confirmation candle, should penetrate higher, at least half way, into the real body of the first candle.
Fig 84
Morning Doji Star The diagram below is identical to that above except for the second candle in the formation. It is a Doji where the open and closing prices are the same.
Fig85
The Evening Star The Evening star formation is also a three candle formation that occurs usually at the top of an uptrend. It signals a top in the market, the end of the up trend and the reversal of that trend. It is the inverse of the Morning Star formation. It is a requirement of the Evening Star formation that a clear uptrend can be identified. The first candle must be a strong up candle with a tall body. The second candle should have a higher opening and a small real body, if any at all as in the case of a Doji. Once again it doesn’t matter whether the candle is white or black, up or down. The size of the body or the lack of a real body should be enough to render the direction of this particular candle in the formation largely irrelevant. The third candle is the confirmation of a change in trend and its real body should push at least half way into the real body of the first candle.
Fig 86
Evening Doji Star The star position refers to the isolation of a bar, above or below the recent activity of the market. It is defined essentially by the gap open and in the case of the Doji formation this is the same price as the close. The Doji increases the potential and possibly the strength or impact of the reversal signal.
Fig 87
Craig MacLean is a Futures Adviser Licensed under the Australian Securities Commission, Corporations Law. The writer accepts no responsibility for any losses incurred from any action or inaction derived from the advice in this report.