The general concept here is to use these divergences to find the most probable short trades. To better understand how the evening star pattern works, let’s take a look at a real-world example. We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. 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. Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training.

What Are the Risks Involved with the Evening Star Candlestick Trading Strategy?

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It consists of a bullish candle, a small-bodied middle candle, and a bearish candle, showing a transition from buyer control to seller strength. This pattern often appears at market peaks, where optimism is giving way to caution. The opposite of the evening star is the morning star candlestick pattern, which is viewed as a bullish indicator. The morning and evening star candlestick pattern are similar chart patterns; the only difference is that the morning star pattern is the inverse version of the evening star.

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While that may be the formation, it may not always look exactly like that. The doji pattern occurs when the open price of a stock is the same or nearly the same as the close price. Long candlestick bodies are indicative of intense buying or selling pressure, depending on the direction of the trend. The first step is to identify the Evening Star pattern in a price chart.

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• Just remember, the longer the timeframe, the more reliable the pattern tends to be.
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It is especially valuable when confirmed by other technical indicators. They are typically seen after a period of consistent price increase, signaling a potential shift from a bull market to a bear market. Evening Star patterns occur at the peak of an uptrend, often near significant resistance zones. Therefore, the pattern is used on various time frames and can be applied in many trading strategies, from scalping to long-term trading. This chart pattern warns market participants of the buyer’s weakening potential and the seller’s growing pressure. Practically, this pattern shows an increase in market supply amid weakening demand.

Evening Star Pattern Example

Traders who recognize the Evening Star pattern often do so because they understand its historical context and psychological backdrop. The bot facilitates a community dialogue where contemporary experiences and algorithm-driven evening star doji insights converge. Participants share their performance outcomes during challenges, allowing for collaborative learning that fosters better decision-making based on real-time data. After the price bounced off the resistance, it saw a fairly quick move downwards and all our possible TPs were implemented, so we can consider the trade successful.

Strong Bearish Candlestick Patterns

The third strategy involves using the Relative Strength Index (RSI) indicator for its divergence function. However, we can observe that while the price forms a higher high (eventually leading to the evening star), the RSI forms a lower high. The Evening Star Candlestick Formation is bearish and a reversal pattern that signals the potential end of an existing uptrend and the beginning of a possible downtrend.

• The Evening Star Candlestick pattern usually appears at the top of an uptrend.
• It’s worth noting that in a macro uptrend environment, bearish reversal patterns do not typically result in a large move.
• This pattern is more comparable to a chart pattern such as the head and shoulders pattern, which has an 81% chance of playing out, according to research by Liberated Stock Trader.
• Each candlestick pattern is backtested and includes rules, settings, statistics, probabilities, and performance metrics.

A downward breakout occurs when price closes below the bottom of thecandlestick pattern. In this example, the new downtrend is a lasting one, but it takes its time trending lower. While the Evening Star is a reliable bearish reversal signal, traders should seek confirmation—such as increased volume or additional technical indicators—before making trading decisions.

It is formed at the end of an uptrend at local or new historical price highs. Trading the Evening Star pattern suggests going short once the pattern has formed on the top. Conservative Entry – In this approach, you first wait for price to break below the third candle’s low (see above image) to confirm the bearish momentum. The final candlestick must be at least the same size as the second candle and have little to no shadow for the Three Black Crows pattern to be complete.

This pattern suggests that buying pressure is fading while selling pressure is increasing, making a trend reversal more likely. The name might sound scary to those afraid of the dark, but I’m going to use data to shine a light on this pattern and how to trade it optimally. But first, let’s learn how to identify this three-bar pattern on our candlestick charts. This is an even more powerful version with a larger gap between the first and second candles.

Check Volume for Validation

The Evening Star pattern is a candlestick pattern that appears at the end of the uptrend and signals that a downtrend is going to take place. Resistance levels are price points where an asset has historically struggled to move past. When the Evening Star forms near a known resistance level, it strengthens the signal for a bearish reversal. The Evening Star candlestick pattern uses these four prices to tell a story of potential market reversal. The pattern consists of three candles, each representing a trading day.

The Evening Star pattern, like the Morning Star pattern, is popular among traders due to its ability to identify relatively reliably a change in sentiment from bearish to falling bullish. The “evening star” thus symbolises the end of the day (upward trend) and the arrival of the night (downward trend). Let’s take an example of the Evening candlestick Star pattern in the XYZ Ltd. stock chart over 3 trading sessions. On the first day, a long green candle forms as buyers are in control, the price moves up from 800 to 850, and there is strong bullish momentum and optimism. The Evening Star candlestick pattern is a well-known bearish reversal signal, with an estimated success rate of around 70%.

Moreover, in contrast to the Shooting Star pattern, which signals short-term corrections, the Evening Star pattern mainly indicates a forthcoming trend reversal to the downside. The morning star is the direct counterpart of the evening star, and visually, they look like mirrored versions of each other (see image above). A practical way to use this setup is to wait for the RSI to drop from the overbought zone as the Evening Star pattern finalizes. This downward shift in the RSI shows that bullish momentum is fading, increasing the chances of a bearish reversal. Traders can then execute short positions while setting a stop-loss above the high of the second candle in the pattern to manage risk effectively.

In this guide, you’ll learn how to identify this pattern and trade the evening star to reasonable price targets. The pattern is confirmed when the third candlestick has a bearish close below the second candlestick. Ultimately, the best indicators to use with the Evening Star candlestick trading strategy will depend on the individual trader’s strategy and trading style. Traders should experiment with different indicators and strategies to find what works best for them.