Breakout is the first thing that attracts the price action traders to keep eying on a chart. Then, correction/consolidation followed by reversal candle breaching consolidation support/resistance is the signal to trigger an entry.
The breakout level plays an important role, which often becomes consolidation support/resistance and produces the reversal candle. Sometimes a breakout level produces even stronger reversal patterns such as Morning Star and Evening Star. When that happens, it attracts more traders and brings more liquidity. In today’s lesson, we are going to demonstrate an example where the breakout level holds the price as support; produces the Morning Star to offer a long entry. Let us get started.
The chart shows that the price heads towards the North with good bullish momentum. On its way, it makes a breakout at the highest high. The pair then produces a bearish reversal candle to consolidate around the breakout level. The buyers are to keep an eye on this chart. If the breakout level produces a bullish engulfing candle closing well above consolidation resistance, they may trigger a long entry.
The chart produces a Doji candle (tiny bullish body with long shadows both sides). The breakout level holds the price, for which the buyers are going to be very keen to keep an eye on this pair. If the next candle comes out as a bullish engulfing candle, it would also form a candlestick pattern called Morning Star.
The chart produces a bullish engulfing candle closing well above consolidation resistance. A bullish engulfing candle is enough to attract the buyers to go long in this chart. The combination of the last three candle forms Morning Star, which is a strong bullish reversal candlestick pattern. The buyers may trigger a long entry right after the last candle closes. Stop Loss is to be set below the breakout level and Take Profit is to be set with 1R. Let us proceed to the next chart to see how the trade goes.
The next candle comes out as a bullish candle. The buyers seem to have taken control. The price may hit the target soon.
It takes only two candles to hit the target. Traders make some green pips in a hurry. If we analyze this trade, we find
- The price makes a bullish breakout and comes back at the breakout level.
- The breakout level works as support and holds the price
- It produces a bullish engulfing candle closing above consolidation resistance.
- It produces a candlestick pattern called Morning Star as well.