In this article, we are going to be covering the evening star pattern. When this pattern appears, it hints that a trend reversal may occur. A candlestick pattern can tell an investor a story about price action. Each candlestick gives us information about the high price, low price, and the open and closing price of a stock asset.
When a collection of candles appears together, it can illustrate where the price may be going in the very near future. This hint of possible price direction can be helpful when combined with other trading strategies. Is the stock in an established bullish uptrend, or has it stalled out and are the bears taking over? Candlestick action can tell us just that!
Candlestick patterns are a lagging form of technical analysis. What this means is that each bar has to complete for a trader to use the information to their advantage. No matter that fact, they still prove to be useful and reliable when combined with other forms of confirmation.
What Does the Evening Star Candlestick Pattern Look Like?
Since candlesticks contain price information, the size of their bodies and range of wicks can dictate just how much the price fluctuates due to buying or selling pressure.
When you have a large-bodied bullish candle, you know the price is increasing as well as buying participation. When a large-bodied bearish candle forms, you know the price is decreasing and there is selling pressure. If a candlestick body is smaller, the modest move in price can inform traders that there may be a brief stall in trend and a possible reversal to follow.
It is important to understand this information because the evening star formation consists of three candlesticks: a large bullish candle, a modest or indecisive candle, and a strong bearish candle.
First Candle
The first candle of the evening star pattern has a large bullish candlestick body.
This strong bullish candle displays that there is participation from both bulls and bears, that buying pressure exists, and that the price is continuing to increase.
Second Candle
The next candle of the evening star pattern is more modest in size. It is a small bodied candle that demonstrates only a small increase in price from the previous first candle.
The sentiment here is that the buying pressure has subsided a bit and that the bulls and bears are facing off. There is more balanced between the two parties, being demonstrated by the smaller fluctuation in price movement.
This candle can be either green or red, or even a Doji candle. In an ideal evening star pattern, there is a gap up in price between the first candle and the second candle.
Third Candle
The third candlestick of the evening star candlestick formation has a large bearish candlestick body. This shows that the price is being pushed down and translates into a bearish reversal.
The price of the large bearish candle opens below the previous candle and closes near the middle of the first candle.
In an ideal evening star pattern, there is a gap down in price between the second candle and third candlestick.
What Does the Evening Star Candlestick Pattern Mean?
When you think of the word evening, you think of a day coming to an end or a finish. That same concept can be applied to evening star patterns.
The candlestick pattern appears after an uptrend and is one of several trend reversal patterns that exist. When the three candles form, you can take note that the current bullish uptrend throughout the trading day is ending and that a potential reversal may take place.
Like other candlestick patterns, such as the dark cloud cover, bearish Harami, or the shooting star candlestick pattern, the evening star candles signal a bearish reversal or price reversing to the downside.
How to Trade the Evening Star Candlestick Pattern
The evening star pattern is considered to be one of the more rare of the reversal patterns. Regardless, when it forms, it is one to take note of. Like all candlestick patterns, a trader should not rely on the pattern alone to implement a trade position.
Candlestick patterns are like other technical analysis tools. They are best when validated by other methods such as technical indicators and trading strategies.
When an evening star pattern presents, a trader may confirm the reversal in price direction by utilizing technical indicators such as the MACD, which measures trend, or the RSI, which can depict overbought or oversold market conditions. The change in trend can also be confirmed by using a supply and demand zone strategy or various moving averages.
If you are already in a bullish trade position, the pattern may signal you to exit your position once validated. If you are looking to take a trade, the reversal pattern may signal a short position or option put taking advantage of the downtrend once validated.
Either way, the evening star pattern is the best reliable when confirmed by other technical analysis tools, technical indicators, and trading plans.
Summary: Evening Star Candlestick Pattern
The evening star pattern is a three candle pattern that signals a bearish reversal.
It is important to see a long bullish candlestick, followed by a smaller bodied candle, and then a strong, large bearish candle. The first candle and third candle must show a decision in price direction, whereas the middle, or second candle, demonstrates a stalemate.
Take note that the evening star pattern can appear on any asset, such as the stock market, forex market, futures, etc. It also can appear in any time frame. So, if you are a day trader, swing trader, or long-term investor, be sure to use the best time frames for your trading style to validate the movement.
The opposite candlestick pattern to the evening star candlestick pattern is the morning star. The morning star pattern is a bullish reversal pattern and is seen at the end of a down-trending market.
Like with all candle patterns, do not rely on their information solely to enter trade positions. Seek confirmation for better reliability. Trading involves significant risk. It is highly advisable to practice identifying and utilizing candlestick patterns before implementing them live in your trading day.
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