Evening Star Candlestick
In this article
The Evening Star candlestick pattern appears at the end of an uptrend in candlestick patterns to indicate the beginning of a downtrend. The Morning Star indicates a reversal to the upside by appearing at the end of a downtrend. The Evening Star is one of the most basic trading patterns that traders need to pay attention to.
When the Evening Star appears, it is a warning that the uptrend is coming to an end and indicates it is time for traders to book profits. This article will explain how to trade the Evening Star pattern and understand its formation.
What is the evening star pattern?
The Evening Star pattern occurs on asset price charts as a reversal pattern. The signal usually occurs at the top of an upward trend and is bearish. Evening Star patterns are uncommon among traders, but they are good indicators for technical analysis.
Evening star formation
A reversal pattern is also present in the evening star, which has the same structure. The evening star signals a possible change in price direction compared to the morning star, which occurs at the top of an uptrend.
Evening star candlestick pattern
This structure also meets all four conditions present in a morning star. It is best to see a long and bullish candle at the end of an uptrend, a short and bearish candle at the top, and a big, red candle at the end of the trend, which signals that a reversal is underway, as the buyers are no longer driving the price.
To analyse the morning and evening star patterns, you can use the historical price action and the Metatrader 5 trading platform, which you can access here.
How does an evening star work?
A candlestick pattern summarises certain information about a stock in a short period. Specifically, it represents the open, high, low, and close prices of a given stock over some time.
There are two wicks and a candle in every candlestick. A candle’s length is dependent on the price range between its highest and lowest point. Candles with a long length indicate significant price changes, while those with short lengths indicate small price changes.
In other words, long candlestick bodies indicate intense buying or selling pressure, based on the direction of the trend, while short candlestick bodies indicate little price movement.
Evening star patterns can serve as robust indicators of future stock price declines. For example, after three days, the pattern develops as follows:
- The first day begins with a large white candle, which signifies continued price rises.
- There was a modest increase in price on the second day since the candle was smaller.
- On the third day, a large red candle opens lower than the previous day and closes close to the middle of the first day.
It may be a reliable indicator of the beginning of a downward trend when it appears. However, there can be difficulty discerning it amidst the noise of stock-price data. The use of price oscillators and trendlines can help traders confirm whether an evening star pattern is present.
Rather than relying solely on one technical indicator to predict price movements, you should consult several indicators.
Even though it is popular with traders, the evening star pattern is not the only bearish indicator. In addition to the bearish harami and the dark cloud cover, you can see the bearish engulfing pattern and the shooting star. Traders are likely to watch for patterns unique to them to detect trend changes.
What does the evening star tell traders?
An Evening Star pattern is a bearish sign of a potential trend reversal at the top of an uptrend. Like the Morning Star, it consists of three candlesticks, with a star in the middle of the candlestick. An evening star must begin with a candlestick of light colour and a large natural body.
This candlestick has a real short body that doesn’t touch the natural body of the candlestick before it, called the star. The gap between the bodies of the candlesticks defines a spinning top or Doji.
Additionally, stars can form inside the upper shadows of candlesticks. Stars are the first sign of weakness, as they indicate that the buyers could not move the price much higher than it closed during the previous period.
Following the star is a candlestick that confirms this weakness. Ideally, this should be a dark candlestick that fits snugly into the body of the first candlestick.
In the evening star, the reliability increases if the third candlestick opens below the actual body of the star, leaving a gap between them. Nonetheless, this is very rare. A third candlestick is more reliable if its natural body penetrates the actual body of the first candlestick and if its lower shadow is very limited or non-existent. Last but not least, you should also consider the volume since the pattern is more reliable if it is lower on the first candlestick and higher on the third.
How to identify an evening star on forex charts?
The Evening Star can be distinguished from three significant candles on a forex chart in more ways than one. To interpret the pattern, you need to know where the price action appears within the existing trend.
Establish an existing uptrend: The market should exhibit higher highs and higher lows.
Large bullish candle: Big buying pressure and an extension of the uptrend caused the big bullish candle. As of right now, traders should only seek out long trades since there is no evidence of a reversal.
Small bearish/bullish candle: This small bearish/bullish candle shows a fatigued uptrend – sometimes called a Doji candle. These candles often gap higher as they make higher highs. It doesn’t matter whether the candle is bullish or bearish. The main point here is that the market is somewhat uncertain.
Large bearish candle: This is the first real sign that new selling pressure is beginning. When it gaps down from its previous close, it signals the start of a new downtrend in non-forex markets.
Subsequent price action: After a successful price reversal, traders can expect lower highs and lower lows, but with well-placed stops, traders can minimise the risk of a failed move.
Bearish evening star candle formation
When the market shows signs of indecision, traders will tend to look for signs of easing buying pressure. Doji candles can appear at this point in the market.
Evening star Doji
Markets that open and close at the same level or very close can show with Doji candles. This indecision puts the market in a bearish position, as bears see value at this level and prevent further buying. A bearish confirmation appears by the appearance of the bearish candle after the Doji.
What about the morning star?
Morning Star is the bullish version of Evening Star and marks a potential turning point in a downtrend (bullish reversal pattern). The Morning Star can also be analysed using the same method as the Evening Star. However, it will reverse the process.
Strategy to trade evening star
The Evening Star pattern can occur when an established trend leads to a reversal pattern.
Following the completion of the formation, traders can look for entry opportunities at the opening of the very next candle. Traders with a more conservative approach might delay their entry and wait to see if price action moves downward. This has the disadvantage that the trader will enter at a much lower level, especially in fast-moving markets.
It is possible to target previous levels of support or previously consolidated areas. A break of the recent swing high invalidates the reversal, so you should place stop orders above this level. Traders should maintain a positive risk-to-reward ratio to minimise exposure to forex market risks since there are no guarantees in this market.
How to trade & win Forex with an Evening Star candlestick pattern?
The evening star candlestick pattern, a reversal pattern, provides a bearish signal. The following steps will explain opening a safe and effective Forex order.
Notes: A bearish market is forecast by the Evening Star. You will only be able to sell at that time. It would be best if you didn’t place reverse orders (buy) with Evening Star.
Sell at the top
The price will usually plummet every time the Evening Star pattern occurs at the top. As such, you can place a sell order in this instance.
Open an order as follows:
Entry Point: Whenever the price reaches the end of the Evening Star candlestick pattern.
Stop-Loss: Before the price declines to the lowest level.
Take-Profit: When the price touches old resistance levels formed in the past.
How to trade & win Forex with the evening star?
Trade following the trend with Evening Star:
A trader using this strategy must receive two signals to open an order. The first signal is when the price is declining. Secondly, it is the pattern of the Evening Star candlestick.
You can place an order as follows:
Entry Point: Whenever the price reaches the end of the Evening Star candlestick pattern.
Stop-Loss: At the next resistance level.
Take-Profit: When the price reaches an old support level.
Trade following the trend with the Evening star
Traders will wait for confirmation signals when the Evening Star appears before deciding whether to trade. So, with this indicator, your trading efficiency can be increased.
Evening star vs morning star patterns
Morning Star patterns indicate a reversal from bearish to bullish, in contrast to the Evening Star patterns. The first candle of a morning star is a long bearish candle, indicating a downward price momentum. A “morning star” is a short-body (bearish or bullish) or Doji candle.
Bullish candles confirm the reversal and cover most of the loss from the first candle. The morning star should ideally appear below the first candle, and the confirmation candle should appear above the morning star.
In addition to Evening Star and Morning Star patterns, there are also other types of stars. Each of the other Star patterns is a reversal pattern that can help traders decide on buying or selling. For example, despite the ongoing debate over whether technical analysis can serve as an investment tool, the Evening Star pattern is a reliable tool that can predict a bearish trend.
What are the pros and cons of evening star candlestick?
You can find both pros and cons in this candlestick pattern.
- There is often an Evening Star pattern in the charts and well-defined entry and exit levels.
- Since they frequently occur in the charts, it is easy to identify this pattern.
- In addition, one should keep in mind that if it signals a failed reversal, the price might move higher.
- It confirms the signal when the evening star pattern correlates with other technical indicators such as the resistance level.
- How do you trade evening stars?
The Evening Star pattern appears in three candlesticks during an uptrend and is a bearish reversal candlestick pattern. As a result, it signifies a slowdown in upward momentum before a bearish move that lays the foundation for a new downtrend.
- Is the evening star bullish or bearish?
An Evening Star pattern is a technical analysis indicator that price momentum is reversing from upward to downward. Patterns of this type rarely appear, but they are considered reliable bearish indicators.
Morning Star patterns are also trend reversal patterns, which indicate buying opportunities and are bullish.
A candlestick pattern called an evening star appears at the end of an uptrend and signals that there will be a new uptrend.
It’s a bearish candlestick pattern composed of three candles: a large bullish candle, a small bearish candle, and a small bullish candle.
There is often an Evening Star pattern in the charts and well-defined entry and exit levels. In addition, volume and other technical indicators, such as resistance levels, can confirm evening star patterns.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst