The Morning Star & CCI Strategy is a powerful reversal trading method that combines the Morning Star candlestick pattern with the Commodity Channel Index (CCI) to confirm momentum shifts and improve entry timing. This setup is ideal for catching early trend reversals at major support levels and is especially effective in forex, indices, and commodities.

By waiting for both candlestick and indicator alignment, this strategy helps reduce false signals and provides a structured approach to trading bullish reversals.

**What Is the Morning Star Pattern?

The Morning Star is a three-candle bullish reversal pattern that forms after a downtrend.

Structure:

1. First candle: Long bearish candle continuing the downtrend
2. Second candle: Small-bodied candle (indecision), often a doji or spinning top
3. Third candle: Strong bullish candle closing above the midpoint of the first

Implication: A potential reversal as selling pressure fades and buying pressure steps in.

What Is the CCI (Commodity Channel Index)?

The CCI is a momentum-based oscillator that measures how far price deviates from its statistical average.

Key levels:

• +100: Overbought
• –100: Oversold
• Crossing above –100 from below can signal the start of bullish momentum

Strategy Objective

• Use the Morning Star to identify bullish reversals
• Confirm the move using the CCI crossing above –100
• Enter on clear reversal with momentum backing

Indicators and Tools Required

• Candlestick chart
• Commodity Channel Index (CCI), default setting: 14
• Optional: Support zone or trendline confluence for added confirmation

Step-by-Step Strategy Setup

Step 1: Identify a Downtrend

• Look for a consistent series of lower lows and lower highs
• The stronger the downtrend, the better the reversal potential

Step 2: Spot the Morning Star Pattern

• Ensure clear three-candle formation
• The third candle should close strongly bullish, ideally above the first candle’s midpoint

Step 3: Confirm with CCI

• Look for CCI to cross above –100 as the third candle forms or closes
• Stronger signal if CCI breaks into positive territory (+100)

Step 4: Entry

• Enter at the close of the third candle, once CCI confirms the move
• Alternatively, wait for a minor pullback to the breakout zone

Step 5: Stop Loss

• Place below the low of the Morning Star pattern
• Can also use ATR (Average True Range) to fine-tune stop distance

Step 6: Take Profit

• Aim for the next resistance level
• Use a 1:2 risk-to-reward ratio or trail stop behind higher lows

Example: AUD/USD H4 Morning Star + CCI Confirmation

• AUD/USD in a short-term downtrend
• Morning Star forms near 0.6600 support
• CCI crosses above –100 on the third bullish candle
• Long entry at 0.6620, SL at 0.6580, TP at 0.6700 (risk:reward = 1:2)

Best Markets and Timeframes

• Timeframes: H1, H4, D1
• Major FX pairs (EUR/USD, GBP/USD, USD/JPY)
• Also effective in gold, crude oil, NAS100, SPX500

Tips for Optimising This Strategy

• Look for confluence with horizontal support, round numbers, or trendlines
• Avoid using in sideways or low-volatility conditions
• Combine with volume spikes for additional confirmation
• Do not take the setup if the third candle is weak or closes near the middle

Advantages

• Combines price action and momentum confirmation
• Clear entry and exit criteria
• Works across asset classes
• Reduces noise by avoiding early entries

Risks and Limitations

• Morning Star patterns must form in clear downtrends to be effective
• CCI can lag in strong trends—ensure price context supports the trade
• Choppy markets can lead to false breakouts

Conclusion

The Morning Star & CCI Strategy offers a reliable, rule-based approach to identifying bullish reversals backed by real momentum. By requiring confirmation from both candlesticks and the CCI indicator, traders can significantly improve the accuracy and timing of their long entries.

To develop this strategy further and learn how to combine it with professional risk management and institutional techniques, enrol in our Trading Courses and elevate your forex trading approach with proven, structured methods.