Reading candles
Morning star and evening star
Three candles: a strong move, a small pause candle, then a strong move the other way that closes well into the first candle.
Tested more than once and no dependable profit survived costs.
Tests on stocks, index futures and EURUSD mostly find no reliable profit once costs are counted; the few positive results are in stock markets and depend on the exit rule. A pattern describes what price just did. It is not a forecast.
What it is
Morning star (bullish): a falling candle, a small candle, then a rising candle closing beyond the midpoint of the first body. Evening star is the mirror. The classic version has gaps, which rarely occur in continuously traded markets.
What it suggests
Control moved from one side to the other across three periods.
How to check it
Check that the first and last bodies are strong, the middle is small, and the pattern formed at a level.
Common mistakes
- Requiring a gap that the market does not produce.
How we will test it
On public price history, never on anyone's account. Until it is done, the note above is all we can honestly say.
- Cases: a star pattern at a swing level
- Measure: share of cases where price closes beyond the pattern's far side first, and average R after costs
- Window: next 1 to 10 bars
- Compared with: random bars with similar range
Sources
- Marshall, Young and Rose (2006), Candlestick technical trading strategies: can they create value for investors? Journal of Banking & Finance 30(8) (citation and headline finding only)
- Duvinage, Mazza and Petitjean (2013), The intra-day performance of market timing strategies and trading systems based on Japanese candlesticks, Quantitative Finance 13(7) (abstract or primary page read)
- Fock, Klein and Zwergel (2005), Performance of candlestick analysis on intraday futures data, Journal of Derivatives 13(1) (citation and headline finding only)
- Orquin-Serrano (2020), Predictive power of adaptive candlestick patterns in forex market: EURUSD case, Mathematics 8(5) (abstract or primary page read)
- Lu, Chen and Hsu (2015), Trend definition or holding strategy: what determines the profitability of candlestick charting? Journal of Banking & Finance 61 (citation and headline finding only)
Related lessons
Written in our own words. Education only, not financial advice.