Sunday, September 16, 2007

Bullish Morning Star Reversal - QUALCOMM, Inc. (Public, NASDAQ:QCOM)

Bullish Morning Star Reversal Pattern




A morning star or doji morning star is a three candlestick reversal pattern. It signals a bottom reversal after a downtrend or gap down. The first candle is a WR red bar. The second candle is a star or doji, the real body of which does not overlap with the previous red bar. The third and concluding candle in the pattern is green and it closes at least 50% of the length the first red stick.

As you can see from the 15 min. QCOM chart above, the first three bars of Friday's session carved out a bullish doji morning star. Because the third bar was so wide (bullish), I decided to trade it off of the 5 min. time frame below.

The 15 minute FFIV chart below is a good example because it has two morning star patterns. The first one midday, did not satisfy the criteria 100% because the third bar did not close at least 50% of the length of the WR red bar. Ultimately, the pattern was a head fake, because after testing the high of the WR red bar, it continued the downtrend.

The second morning star reversal pattern later in the session meets the criteria 100% and sets off a momo move to the upside.

Lowering the time frame to the 5 minute view, we see exactly what is happening as the morning star develops and it's interesting to note that we have 3 inside bars at the base of the PP (green line).


The evening star is the exact opposite of the morning star and it marks the reversal of an uptrend. The patterns are quite reliable when all of the criteria are met. Generally speaking, the wider the third bar, the higher the likelihood of a generous move in the direction of the reversal.

A Powerful Reversal Pattern - Stocks and Commodities - Sept. 2004

6 comments:

Bubs said...

It's simply amazing how you spot these patterns in real time, great job.

Ragin' Cajun said...

Great post! This is quickly becoming one of my favorite blogs.

Thanks Jamie.

Alex said...

Jamie,
How does volume play in this formation? I'm assuming the first candle should be high volume, followed by low vol. NRB and increasing volume on the third bar. Keep up the great work.

Jamie said...

Alex,

That's how I like the volume to play out on this pattern, with volume building as the reversal takes off.

Tyler said...

Jamie,

I have been going through your Key Posts again this morning and each one is extremely helpful.

I think I have been trying to find the "holy grail" as Trader X would say. I think I have my focus back after reading these key posts and your charts from yesterday.

Thanks for all you do.

Tyler

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