Candlestick patterns are used by technical analysts to predict future price reversals to the up or down side. One of such candlestick patterns which signal the end of an uptrend is “Evening Star Candlestick Pattern”.
Evening star candlestick pattern is a type of reversal signal that usually appears at the top of an uptrend. Traders consider it as a reliable bearish signal as it can predict investor sentiment and change in price momentum.
Understanding Evening star candlestick pattern
Evening star is a bearish candlestick pattern consisting of three candles: a large bullish candle, a small narrow range candle and a large bearish candle formed at the top of an uptrend. It shows that the uptrend is nearing its end as sellers are stepping in to take control of the market.
The first candle is an up day as a continuation of the uptrend. The second candle is followed by a gap opening and then completed with a doji / spinning top indicating a tight trading range. By seeing the second candle sellers come in and keep the stock from going much higher than the first day’s open.
The third candle almost closes the gap between the first and second candle.
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. It’s also referred to as a bearish doji star.
Rule of recognition
Here are the conditions to be satisfied in order to form Evening star candlestick pattern;
- There must be an uptrend.
- The first candle must be a bullish candle showing continuation of the existing uptrend.
- Second candle gaps open higher but close with a tight trading range showing indecisiveness among bulls and bears. It shows buyers are not interested in buying at that price level. It’s the star which shows a slowdown in the momentum.
- Third candle must be a bearish candle that opens below the 2nd candle and then closes below the midpoint of the 1st candle.
Few traders use the evening star as a reliable technical pattern which confirms the downtrend. But you should also note that if it signals a failed reversal, then the price could move further up. Therefore, many traders prefer to read it in addition to other technical indicators such as RSI, Stochastic, MACD, Volume, trendline, Support and Resistance.
Opposite of an evening star candlestick pattern is the morning star candlestick pattern, which is considered as a signal for reversal of a downtrend.
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.
Here is a list of candlestick patterns for your reference;
- Morning Star
- Bearish Abandoned baby candlestick pattern
- Bullish Abandoned baby candlestick pattern
- Three Inside up/down
- Three outside up/down
- Inside Bar
- Bullish Piercing
- Dark Cloud Cover
- Spinning Top
- Shooting Star and Inverted Hammer
- Hammer & Hanging Man
- Gravestone, Dragonfly and long-legged Doji
- Engulfing Candlestick Pattern
- Spinning Top
- Marubozu
Be sure you practice identifying and trading these candlestick patterns on a demo account before trading them with real money.
In addition to the disclaimer below, please note, this article is not intended to provide investing or trading advice. Trading in the stock market and in other securities entails varying degrees of risk, and can result in loss of capital. Most investors and traders lose money. Readers seeking to engage in trading and/or investing should seek out extensive education on the topic and help of professionals.
