Evening Star Candlestick Pattern: A Powerful Indicator of Trend Reversals

This candlestick pattern is also easy to identify as they occur frequently in the charts. We have defined ALL 75 candlestick patterns and put them into testable, strictly trading rules. Each candlestick pattern is backtested and includes rules, settings, statistics, probabilities, and performance metrics. We recommend backtesting all your trading ideas – including candlestick patterns. It begins with a gap down (a bearish signal) and bears are able to press prices even further downward, often eliminating the gains seen on Day 1. The doji pattern occurs when the open price of a stock is the same or nearly the same as the close price.

The evening star candlestick pattern is a three-candle sequence that tends to be a bearish indicator. We had a look at its meaning, definition, and also covered how you could go about to improve the profitability of the pattern. Here is how the evening star pattern compares to other common chart patterns and Japanese candlestick patterns. There is one final thing that can help you spot the highest probability reversals whenever an evening star forex pattern shows up on your chart. Note how the third red reversal candlestick’s range broke below the low of the first green candle of the same pattern (black dotted horizontal line on the chart above). We previously mentioned that the third reversal candlestick of the evening star pattern often shows an increase in volume.

  • The morning star, on the other hand, indicates a potential bullish turn, inviting traders to go long or close short positions.
  • If the volume also peaks above the prior two candlesticks of the same pattern, then that is an even better sign that generally confirms the sellers are taking control.
  • The morning star pattern is a bullish reversal pattern, which indicates a prospective reversal from a downward trend to an upward trend and gives a buying signal.

Evening Star is a pattern for early warning of an upcoming reversal from up to down. For safe entry points, you can combine it with other technical analysis indicators. When it appears at the top of an uptrend, it signals a reverse from up to down. These are the two best working conditions for this candlestick pattern.

Evening Doji Star: Three Trading Tidbits

A support level TSLA stock had tested previously before its recent upward movement. When trading the Evening Star on forex markets, the price will very rarely gap like they do with stocks and so the three-candle pattern usually opens very close to the previous closing level. Looking at the chart, once the formation has completed, traders can look to enter at the open of the very next candle. More conservative traders could delay their entry and wait to see if price action moves lower. However, the drawback of this is that the trader could enter at a much worse level, especially in fast moving markets.

  • It does so by comparing the prices of put and call options, which vary with the market’s expectations of future price moves.
  • One effective way to do this is by utilizing technical analysis, which includes studying various candlestick patterns.
  • By understanding its characteristics, using it in conjunction with other technical analysis tools, and being aware of the risks and benefits, traders can improve their chances of success.
  • As we mentioned earlier, one great method to know when the market is overbought is to look at the price in relation to the upper Bollinger band.

However, its guidance is not infallible; it’s merely one beacon among many in the intricate financial seas. Finally, complementing the evening star pattern with other technical indicators is key to a robust trading strategy. Utilizing tools like moving averages, the Relative Strength Index (RSI), or the Moving Average Convergence Divergence (MACD) can provide additional confirmation of bearish momentum. This holistic approach ensures that traders are not solely dependent on one pattern and can make more informed decisions based on a comprehensive analysis of market indicators. The pattern reaches its critical point on the final day with a bearish candle that closes deep into the body of the first day’s candle. This bearish candle, often resembling a bearish engulfing candle, is a pivotal element.

Ways of Improving an Evening Star Candle

– The Evening Star candlestick pattern has high accuracy when appearing at the end of an uptrend. It is also known as the Abandoned Baby candlestick pattern which rarely appears but its accuracy is high. As such, you might want to consider taking an evening star only if the VIX is in an uptrend, signaling that market participants are becoming more bearish.

It’s particularly useful in identifying downward trends but it can admittedly be a bit difficult to pin down. Options like trendlines and oscillators can help and don’t overlook the value of a broker’s advice and assistance. The next day, a doji forms whose body
floats above the bodies of the surrounding two candles. The next day, a black candle takes price below the mid point of the body of the first candle in the pattern, completing
the evening doji star. While certain chart formations – like the inverse cup and handle pattern – have precise methods for calculating a profit target, the evening star is not one of those patterns.

What Timeframes are Best for Using the Evening Star Candlestick Trading Strategy?

In this blog, we will understand the formation of the Evening Star pattern and will also explain how to trade it properly. Traders should be aware of these different trading patterns, and evening star doji the Evening Star is an important one to pay attention to. Also take a look at our guides on stock, CFD, and commodity brokers to find out which online trading platforms are available in .

Benefits of Using the Evening Star Candlestick Trading Strategy

Recognizing that the Evening Star pattern often indicates a bearish reversal, the investor waits for additional confirmation before acting. The next day, a fourth candle continues the downward trend, closing below the star candle and solidifying the pattern’s validity. The investor then decides to open a short position at the opening of the fifth day.

As the Evening Star indicates that the uptrend is going to end, the appearance of it is a red flag to traders and gives a sign that it is time to book profits. An open or opening price is the first price a stock trades at when the market opens in the morning. High and low prices track whether a stock has lost or gained value during the day. The length of the candle is a function of the range between the highest and lowest price during that trading day. A long candle indicates a large change in price and a short candle indicates a small change in price.

Unlike the evening star pattern, the morning star pattern occurs at the bottom of a downtrend and begins a new uptrend. The only true similarity is that there is a doji pattern as the middle candlestick, signaling indecision in the market. The Margex margin trading platform offers a wide range of built-in technical analysis tools that a crypto trader can use to scan for, identify, and trade the evening star pattern. The Margex trading platform will also allow you to short-sell crypto assets like Bitcoin, Ethereum, Litecoin, and more. The success of this strategy depends on the trader’s ability to properly identify and confirm the pattern, as well as to have a solid risk management plan in place.

What’s the Difference Between a Shooting Star and Evening Star?

Candlestick charts are popular among traders for their ability to simplify technical analysis with recognizable patterns that can indicate future market behavior. ” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. Mastering the evening star pattern involves disciplined practice and a commitment to continuous learning. In their strategy, the investor sets a stop loss just above the high of the star candle, reducing the risk in case the stock’s price unexpectedly rises again.