Common Terminologies and Reversal Pattern Used in Candlestick Charts (Part 3)

Stars

Stars form when there is a gap between the two bodies of the candlesticks. In this case, the color of the star does not matter. What is important is that the bodies do not overlap. These can be formed both in the bullish as well as bearish way.

Four separate reversal patterns form a star:

Morning Star

This pattern comes into play when a bullish bottom reversal pattern is formed. Morning star consists of three candlesticks of which the first one has a long black real body followed by the second one which is small and opens lower than the previous open. The third candlestick engulfs the first black body leading to the formation of an island pattern.

Evening Star

Evening star is the opposite of the morning star. In this case, the first candlestick is the long white body followed by a small body that closed above the closing of the previous candle. The third black candlestick has engulfed the first white one.

Doji Star

A Doji candlestick is formed in an uptrend or downtrend. Doji stars are of two types: Morning star and Evening star.

Morning Doji Star: Morning Doji star occurs in the downtrend when there is a Doji candlestick closing much below the black body followed by a long white body that engulfs the prior black body. If there is no white body showing an uptrend after a Doji star, it means the bullishness of the Doji is invalidated.

Evening Doji Star: Evening Doji star occurs in the uptrend when there is a Doji candlestick closing much above the white body followed by a long black body that engulfs the prior white body. If there is no black body showing a downtrend after a Doji star, it means the bearishness of the Doji is invalidated.

Shooting Star

A shooting star is when the candlestick has no or tiny bodies (just a small horizontal line) and a long upper shadow. This is just a warning that there could be a reversal; however, this is not a sure short sign. The color of the body does not matter.

Inverted Hammer

Many beginners confuse this as a shooting star. However, unlike shooting star that occurs in the uptrend, an inverted hammer happens in the downtrend. Again, the color of the body does not matter.

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