How to Make Money Trading with Candlestick Charts

A big Morning star signal in
oversold conditions in BHEL
Notice the excellent Morning Star formation
in mid-January 2007. By now your eyes
should be trained to notice some obvious
things. The position of Stochastics, the heavy
volume, and the large candles on the first and
third day of the formation all lead to a text

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book type Morning Star signal.
Also notice the arrow marked on the chart in
mid-December 2006. Can you analyze why
this is not a Morning Star signal?
If you noticed that the third day of the signal
did not penetrate at least half of the first
day’s black candle, you are right. As
mentioned before, the Japanese have placed
a lot of emphasis on the half way point. The
closing of the white candle over the half way
point shows the credibility of the strength of
the bulls. It was missing in this case.
Figure 9.4
shows a Morning Star formation
in Cummins India Ltd. chart.

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Figure 9.4:
Morning Start signal reversing
the downtrend in Cummins India
Notice in this chart that the stock gapped up
after the indecision day, even though it traded
down during the day. That gap up represents
the forceful nature of the bulls. This always
adds weight to the reversal.

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Figure 9.5
shows a Hammer Morning Star
signal.
Figure 9.5:
Morning star signal in Essar
Oil
The Hammer tells you that all the remaining
sellers got washed out. The stock changed

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hands from the weak to the strong. The third
day witnessed prices closing just above the
half way point of the first day’s dark candle.
Sometimes in a Morning Star formation, the
middle day is not exactly a Doji type day. It
is a small body, indecisive day (also called a
Spinning Top). Analyze the signal formation
in 
Figure 9.6
(Point B) keeping in mind the
action behind the scenes. After the first down
day, the sellers were not able to drive down
the price much lower. The bulls stepped in
on the third day to take control after seeing
the selling dry out.

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Figure 9.6: