The Evening Star Pattern
In this example, the new downtrend is a lasting one, but it takes its time trending lower. The evening star pattern is a three-candlestick bearish reversal pattern, and the dark cloud cover is a two-candlestick reversal pattern. The second candlestick covers half of the first candle with the dark cloud cover. The evening star’s second candle is typically a doji or spinning top with a candlestick close above the preceding candle.
The evening star and morning star patterns are both three-candlestick formations, but they signal opposite market reversals. The evening star candlestick and the evening star doji candlestick both signal a bearish reversal at the top of an uptrend, but the evening star doji is considered more significant. Small-bodied candles in the star position often suggest that market participants are becoming indecisive and that the strength of the current trend could be reversing.
This section delves into how you can improve the win rate of the evening star pattern. It’s best to use multiple technical indicators for predicting price movements instead of relying on just one. It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career. We put all of the tools available to traders to the test and give you first-hand experience in stock trading you won’t find elsewhere. We will help to challenge your ideas, skills, and perceptions of the stock market. Every day people join our community and we welcome them with open arms.
You are expected to do your own research and testing to determine the validity of a trading method, system, or strategy on the market and instrument you wish to trade. The second candlestick must be larger than the body of the first candle for the Three White Soldiers pattern to be legitimate. The final evening star candlestick candlestick must be at least the size of the second candle and have little to no shadow to complete the Three White Soldiers pattern. The Evening Star Candlestick pattern usually appears at the top of an uptrend. Each peak and trough that follows is higher than those that were discovered earlier in the trend.
Evening Star Trading Strategies
Factors like low trading volume, unexpected news, or a strong prevailing trend can sometimes make the pattern unreliable. That’s why traders rely on confirmation to filter out false signals and make more informed decisions. To confirm the evening star pattern, wait for the third bearish candle to close. Other technical indicators, such as volume or moving averages, can provide additional confirmation.
The uptrend, therefore, consists of higher swing lows and higher swing highs. For example, let’s say that you trade a market that tends to perform worse in the second half of the month. If then you spot an evening star around the 15th, you can be a little more certain that it will work out well. The indecision that’s shown in the second candle, coupled with the down gap and negative candle that follows, becomes a sign that market sentiment has shifted and become bearish. Now, knowing why the market moved as it did, or why, is almost impossible. However, trying to figure it out is a great exercise in coming up with ideas for trading strategies and improving your understanding of the markets.
- The Evening star candlestick pattern forms over a period of three days.
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- There is an existing upward trend as the price is above the fifty-day simple moving average.
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The Evening star pattern is a simple yet effective bearish reversal pattern. The pattern is adaptable and is easily interpreted by both new and experienced traders. Traders can improve the accuracy of the evening star candlestick pattern by constantly practising and developing a better understanding of the pattern. The evening star candlestick pattern has four steps that one has to comprehend to identify the pattern.
- The size of the complete Evening star formation, from high to low, is used to determine the take profit level.
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- It consists of a large bullish candle, a small-bodied candle, and a large bearish candle.The Evening Star and Morning Star are opposite three-candle reversal patterns.
- If used with appropriate risk management tools and various technical analysis tools, it can give good profits to the traders.
What Are Other Types of Triple Candlestick Patterns?
The evening doji star candlestick pattern is similar to the evening star. They are both three-bar patterns commonly thought of as bearish reversals. The difference between the evening doji star and the evening star is that the evening doji star’s middle candle is exactly that–a doji. Similar to the evening star, the morning star consists of a large first candle, followed by a small-bodied candle, and finally a large third candle. Different from the evening star pattern, the morning star starts with a bearish candle but closes with a long bullish candle.
What is the Success Rate of the Evening Star Pattern?
Have you ever noticed how the twinkling evening stars seem to signal the end of the day? Just as these celestial bodies foreshadow the coming night, the evening star candlestick pattern can herald the end of an uptrend in the financial markets. Bulkowski’s Pattern Site states that the evening star has a 71% accuracy in forecasting bearish reversals, with a 57% chance of hitting its price target.