Morning & Evening Star Candlestick Patterns: Smart Money Trading Strategy with FVGs & Liquidity Reversals

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ACY Securities - Jasper Osita

Jul 3, 2025

Goal of This Lesson

To elevate your understanding of Morning and Evening Star candlestick patterns by integrating Smart Money Concepts (SMC)—specifically using Fair Value Gaps (FVGs), liquidity sweeps, and market structure shifts (MSS)—to turn a basic pattern into a precision reversal strategy.

The Smart Money Logic Behind Morning & Evening Stars

In traditional price action, Morning and Evening Stars are viewed as reversal patterns based on visual structure. But to Smart Money traders, these patterns are much more—they signal a change in delivery, often following a liquidity grab, and are validated when displacement (FVG) occurs after the third candle.

This is where the edge lies:

The real confirmation is not the pattern itself—it's the shift in intent that follows.

Morning & Evening Star with SMC Context (Reversal)

Step 1: HTF Liquidity Sweep - Price takes out a previous swing (external liquidity)

Step 2: LTF Liquidity Sweep + Pattern (Required) - Price takes out the 1st candle with a wick

Morning Star Formation:

1st Candle - Bearish Candle: Sell-off
2nd Candle - Doji/Small Candle: Indecision or engineered slowdown - but takes out 1st candle with wick
3rd Candle - Bullish Candle: Strong close into the first candle (ideally an engulfing or piercing line)

Evening Star Formation:

1st Candle - Bullish Candle: Sell-off
2nd Candle - Doji/Small Candle: Indecision or engineered slowdown - but takes out 1st candle with wick
3rd Candle - Bearish Candle: Strong close into the first candle (ideally an engulfing or piercing line)

Step 3: Fair Value Gap Forms (Displacement)

If the 3rd candle creates an Fair Value Gap, it signals institutional interest due to inefficiencies of orders that were not filled.

Step 4: Entry: Enter on pullback into the Fair Value Gap

Set limit order at the pullback of the FVG
Stop Behind the Wick of the 2nd Candle
TP at 2x-3x Target or Next Key Level

Check this out for more information about FVGs:

Fair Value Gaps Explained: How Smart Money Leaves Footprints in the Market

The Role of the Third Candle: Not Just Confirmation - It’s the Trigger

The third candle is everything in SMC context:

It must indicate strength or at least show clear displacement (engulfing or piercing candle)
It should ideally form or lead into an FVG
It often coincides with a Market Structure Shift (MSS) on lower timeframes

If no FVG appears after the third candle, the reversal may lack real commitment.

Full Setup Checklist: Morning & Evening Star with Smart Money Context

Steps	Criteria to Confirm
Step 1: HTF Liquidity Sweep	Price must take out a significant external liquidity (e.g. previous day/week/month high & low)
Step 2: LTF Liquidity Sweep	The 2nd candle must wick beyond the 1st candle’s low/high, sweeping internal stops
Pattern Completes	Morning or Evening Star with: • Doji/small 2nd candle (engineered slowdown) • 3rd candle must engulf or pierce the 1st candle
Step 3: 3rd Candle Displacement	The 3rd candle must cause clear displacement and ideally form an FVG
FVG Forms After 3rd Candle	Presence of Lower Timeframe Fair Value Gap confirms unfilled institutional orders
MSS Confirmation (Optional)	Look for Market Structure Shift on LTF to confirm intent
Entry Strategy	Enter on pullback into the FVG (limit order preferred)
Stop Loss Placement	SL behind the wick of the 2nd candle
Take Profit Plan	TP at 2R–3R or next major imbalance / swing level

Key Takeaways

Morning & Evening Stars are powerful when combined with Smart Money Context.
The third candle is your key—look for a strong engulfing/piercing close followed by displacement.
FVG after the pattern is the institutional footprint you need for high probability.
Add MSS confirmation, liquidity sweeps, and key level confluence for precision entries.

Final Thought

Retail traders chase shapes. Smart Money traders seek structure, liquidity, and displacement.

When you combine the visual clarity of Morning and Evening Stars with the hidden signatures of Smart Money intent, you stop guessing and start anticipating. Don’t just trade the pattern—trade the context behind it.

Check Out My Contents:

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Jasper Osita - LinkedIn - FXStreet - YouTube

This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplies by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.

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Morning & Evening Star Candlestick Patterns: Smart Money Trading Strategy with FVGs & Liquidity Reversals

Goal of This Lesson

The Smart Money Logic Behind Morning & Evening Stars

Morning & Evening Star with SMC Context (Reversal)

Step 1: HTF Liquidity Sweep - Price takes out a previous swing (external liquidity)

Step 2: LTF Liquidity Sweep + Pattern (Required) - Price takes out the 1st candle with a wick

Morning Star Formation:

Evening Star Formation:

Step 3: Fair Value Gap Forms (Displacement)

Step 4: Entry: Enter on pullback into the Fair Value Gap

Check this out for more information about FVGs:

The Role of the Third Candle: Not Just Confirmation - It’s the Trigger

Full Setup Checklist: Morning & Evening Star with Smart Money Context

Key Takeaways

Final Thought

Check Out My Contents:

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