Forex Trading

Evening Star Candlestick Pattern

The price goes down fast indicating the bears are also strong. Then bulls gather steam pushing the price high up. Later the bears gather strength and bring the price down near the opening price. If the candle closes below the opening price, it turns red or if closes above the opening price, the candle turns green.

candle evening star

However after the encouraging open the market/stock does not move, and sees a selling pressure. On the 3rd candle of the pattern, the market opens gap down and progresses into a red candle. The long red candle indicates that the bears are taking control. The Evening Star candlestick pattern is also a reversal pattern in technical analysis and the pattern has three candles which forms at the top of a uptrend. The second candle is a small and indecisive candlestick. The Morning Star candlestick pattern is a reversal pattern in technical analysis and the pattern has three candles which forms at the bottom of a downtrend.

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Ideally, it is the apex of the imaginary triangle. One side of this triangle is the line representing the existing uptrend and the other side is the line representing the upcoming downtrend. The first candle must be a bullish candle showing continuation of the existing uptrend. The star can also form within the upper shadow of the first candlestick.

You need to get familiar with the prices to understand the price action on the candlestick chart. In simple words, we mean to say that the long candlestick bodies show massive buying or selling pressure based on the direction of the trend. It strongly indicates that the downward trend in the market has begun. Though candlesticks pattern appears rarely, they are one of the most accurate indicators. Ideally, Japanese candlestick patterns are as unique as their names tend to be. These are variants of ‘star formation’, which occurs when there is a visible gap between the real bodies of the previous candle and the newly formed small-bodied candles.

candle evening star

A candlestick pattern is a way of condensely presenting certain information about a stock. Specifically, it represents the open, high, low, and close price for the stock over a given time period. The evening star is the opposite of the morning star pattern. The two are bearish and bullish indicators, respectively. Although it is rare, the evening star pattern is considered by traders to be a reliable technical indicator. If the third candlestick opens below the actual star, leaving a space between the actual star and the third candlestick, the evening star’s accuracy is improved.

Example 2 – Evening Star

So, we have first a green candle, second a small star-like candle of any colour and the third a red candle. This combination is known to traders as the Evening Star candlestick pattern. Remember, the Evening star is not the only bearish indicator. Other bearish candlestick patterns are dark cloud cover, shooting star, bearish engulfing and hanging man.

Others uses the size of the candlestick to see the reliability of this patten. Therefore adding any other technical indicator with this candlestick pattern, one can further enhance the probability of the pattern reliability. Instead of a spinning top, if you get the 2nd candle as a doji, then the pattern will be called as evening star doji candlestick pattern. Evening star doji is the second most bearish top pattern next to the abandoned baby or island top formation. The confirmation of the reversal signal is given by the third bearish candle itself.

In this article, we will discuss the evening star candlestick pattern and how to interpret it in a chart. After getting the visual confirmation from this chart, the trader should find confirmation from other technical indicators. After the trader is assured of the trend reversal, he/she initiates a short/ sell trade just below the third candle of the evening star pattern on the next day. Herein, a long body green candle comes first, followed by a small red candle and the next is a long body red candle.

candle evening star

The evening star is a strong indicator that a downward trend has started. The pattern typically forms over a three day period. On the first day, you will be able to see a large white candle indicative of sustained price rise; this will be followed by a smaller candle that shows a relatively smaller price rise. The third day will be a large red candle that opens at a price below the second day and then ends near the middle of the first day. How to trade using Evening Star Candlestick PatternThe entry can be placed at the open of the next candle after the morning star pattern has developed.

What is Evening Star Pattern?

This is a daily chart of the COAL INDIA NSE stock chart. All the characteristic patterns are present in this chart. But I should also mention that this type is not a very common sight. The third candle forms the first candle of the bearish downtrend.

The star is the first indication of weakness as it indicates that the sellers were not able to drive the price much lower than the close of the previous period. This weakness is confirmed by the third candlestick, which must be light or white in colour maturity value definition and must close well into the body of the first candlestick. The Evening Star pattern is a three bar candlestick pattern that usually occurs at market tops and Morning Star pattern is a three bar candlestick pattern that occurs at market bottoms.

Past performance in the markets is not a reliable indicator of future performance. An evening star is a candlestick pattern used by technical analysts to predict future price reversals to the downside. The first of the three days is represented by a lengthy white candle, which shows that there has been strong purchasing pressure driving prices higher. Price increases are also visible on the second day, however, they are less pronounced than on the first day. Last but not least, the third day displays a lengthy red candle, indicating that selling pressure has driven the price to about the first day’s midway.

  • When the evening star pattern is backed up by volume and other technical indicators like resistance level, then it confirms the signal.
  • Once it is formed note how the uptrend reverses and a new downtrend starts.
  • The open price of the Day 2 candlestick is lower than the close price of Day 1 candlestick.
  • Price increases are also visible on the second day, however, they are less pronounced than on the first day.
  • Evening Star is a combination of candlestick three candlesticks.

Often, traders describe the stock market as a battlefield. Before entering the market, you need to know that Evening Star Candlestick Pattern is no less than a battle. Figure 17.3 The pattern is marked by black rectangle. Once it is formed note how the uptrend reverses and a new downtrend starts. Second candle have very small price range i.e. small body . It opens gapped-up from the previous candlestick and is known as the star candlestick.

Small bearish/bullish candle

This shape and combination of this pattern have given it high visibility in the chart. As if, this is the brightest spot in the night sky. It also indicates that sunny days are going away and the market is going to pass through a dark or gloomy period.

Japanese candlestick patterns are as unique as their names. Used for describing a wide variety of market trends these patterns are consulted frequently by technical traders. But it requires skills and detail understanding to be able to interpret candlestick patterns.

It also shows that lastly, the traders have largely decided to be on the bears’ side. This gap in price never closes as long as this trend continues. After the gap-down open, the price travels further down and at the end of the day, the candle closes at or near the lowest price of the day. Thus the candle is red and the new bear trend starts. Be sure you practice identifying and trading these candlestick patterns on a demo account before trading them with real money.

Figure 17.4 The above chart explains the trading positions.

Usually, at the top of an uptrend, we can see this candle. The first candle is a green (white/ blue) candle indicating bullishness. The diagram above tells us the structural components of an ideal Evening star candlestick pattern. Second candle gaps open higher but close with a tight trading range showing indecisiveness among bulls and bears.

Here are some charactertsics of evening star pattern that makes its visibility more reliable. Longer length of first and third candlestick is more favourable. The second candle opens with a gap up price indicating that the bulls still wanted to dominate.

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