To confirm the strength and reliability of a Morning Star pattern, several technical indicators can be used in combination with the pattern to validate a potential bullish reversal. Here are the most commonly used indicators:
Volume
Confirmation: High trading volume on the third (bullish) candle of the Morning Star pattern confirms strong buying interest. Increasing volume during the bullish candle suggests that buyers are stepping in with force, which strengthens the reversal signal.
Relative Strength Index (RSI)
Confirmation: An RSI below 30 suggests the asset is oversold, adding weight to the Morning Star pattern as a reversal indicator. When the RSI turns upward after the pattern forms, it signals to improve bullish momentum.
Divergence: If the RSI shows bullish divergence (the RSI makes a higher low while the price makes a lower low), this further confirms the potential reversal.
Moving Averages
Short-Term Moving Average (e.g., 10- or 20-day): If the third candle closes above a short-term moving average, it shows momentum in the reversal. A cross above the moving average signals that the trend may be shifting to the upside.
Moving Average Convergence Divergence (MACD): A bullish crossover (MACD line crossing above the signal line) close to or after the Morning Star pattern provides additional confirmation of the reversal. Stochastic Oscillator
Confirmation: When the Stochastic Oscillator is in the oversold region (below 20) and begins to turn upward after the Morning Star pattern, it signals potential bullish momentum.
Divergence: Bullish divergence between the Stochastic Oscillator and price movement (Stochastic makes higher lows while price makes lower lows) strengthens the reversal signal.
Support and Resistance Levels
Confirmation: If the Morning Star pattern appears near a key support level, it is more likely to result in a sustained reversal. The support level indicates a zone where buyers are likely to step in.
Breakout of Resistance: After the pattern forms, a breakout above a nearby resistance level further confirms the bullish reversal.
Bollinger Bands
Confirmation: When the Morning Star pattern forms near the lower Bollinger Band, it suggests that the price is oversold and could be due for a bounce. If the third bullish candle moves toward the middle band or higher, this is a strong confirmation.
Parabolic SAR (Stop and Reverse)
Confirmation: The Parabolic SAR dots below the price action after the Morning Star pattern signal a shift in trend from bearish to bullish, supporting the reversal.
Average Directional Index (ADX)
Confirmation: A low ADX value (typically below 20) before the Morning Star pattern indicates a weak trend, making it easier for a reversal to occur. If the ADX starts to rise after the pattern, it suggests the new uptrend is gaining strength.
On-Balance-Volume (OBV)
Confirmation: An increasing OBV on the third candle day of the Morning Star pattern supports the bullish reversal. A rising OBV indicates that buying volume is supporting the price movement, adding strength to the pattern.
Fibonacci Retracement Levels
Confirmation: If the Morning Star forms near a Fibonacci retracement level (e.g., 38.2%, 50%, or 61.8%) of the previous uptrend, this level may act as a support zone, increasing the likelihood of a reversal.
Using one or a combination of these indicators with the Morning Star pattern can provide a more robust signal. Between 2000 and 2023, there were 294 occurrences of the Morning Star pattern in Nifty Total profit over 10 days following 294 occurrences of the Morning Star pattern in Nifty between 2000 to 2023 is approximately 92.34%. Or you can say 9,741.8 points. Let me know if you like this article. Sagar Chaudhary +1 (234) 385-8228 care@ganntradingmethod.com www.Ganntradingmethod.com
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