This is the 8th stock screen in the series Japanese Candlestick Trading: Stock Screens for 15 Candlestick Patterns

With the recent drop in the markets over the past 3 days, I thought I would release this screen out of order.
The appearance of Morning Star patterns in these market conditions will be rare, but very powerful. During a bull market, very few stocks actually trade with a bearish enough trend to create this pattern. When the stock creates this pattern during a market correction, it could signal money moving into that stock, or even that sector.

3 Days ago, I mentioned that the market had put in an evening star pattern, signaling a top in the market.

The Morning Star and Morning Doji Star




click to enlarge

Signal Type: Reversal
Bias: Bullish
Inbound Trend: Bearish
Reliability: 9 of 10
Candlesticks in Pattern: 3

Pattern Definition
The Morning Star candlestick pattern is a significant bottom reversal pattern consisting of three candlesticks. They appear at the end of a substantial downtrend, and are most reliable when price reaches a critical area of support, such as a trend line, or fibonacci retracement level. This pattern is significant enough to be traded as the only trading signal, or in conjunction with a momentum and volatility indicator.

Formation
The morning star pattern is a three day pattern characterized by the following

  • The inbound trend must be bearish
  • The first candlestick must be black, with a longer than average real body
  • The second candlestick can be white or black. It must gap below the first candlestick, and have a small real body
  • If the second candlestick is a doji, this pattern is called an Morning Doji Star, and is a very significant pattern
  • The third candlestick must be white, with a long real body, and must close with the first days black candlestick.
  • The third candlestick typically gaps below the second candlestick
  • The third candlestick should close below the middle of the first candlestick’s real body


Criteria That Supports

  • Second candle is doji
  • MACD Divergence
  • Divergence in 3 / 10 oscillator

Morning Star Candlestick Pattern Stock Screen

This stock screen uses Stock Fetcher 2.0.

set{body_bottom,min(open,close)}
set{body_top,max(open,close)}
set{body_size, abs(body_top minus body_bottom)}
set{large_body, 1.5 * body_size}
set{small_body, .75 * body_size}
set{a, close minus open}
set{b, a / 2}

show stocks where body_size 2 days ago is greater than CMA(large_body,30)
and slope of MA(20) is below 0
and open 2 days ago is above close 2 days ago
and open 1 day ago is below close 2 days ago
and close 1 day ago is below close 2 days ago
and body_size 1 day ago is less than CMA(small_body,30)
and close is above open
and close is above close 2 days ago
and close is above 5
add column middle

Options for Adjusting the Screen
1. change the line “and close is above close 2 days ago” to “and close is above middle 2 days ago” (don’t use the ” marks)
2. adjust the size of large and small bodies
3. add minimum trading volume.

Popularity: 11% [?]

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