Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money. The candlestick on Day 2 is quite small and can be bullish, bearish, or neutral (i.e. Doji). When the second candlestick has a long upper tail, it shows the Bear’s rejection in price rising. This is a variant of the Evening Star pattern that has the same precision as the standard one. In this respect, the morning star is a mirror image of the evening star, and conveys the opposite about expected price action.

A single evening Doji star cannot reverse the whole trend of the market. So, to make it a powerful candlestick pattern, you will have to add other technical confluences, for example, resistance or supply zone. Doji candlestick after bullish momentum indicates a pause in a bullish trend. All ranks are out of 103 candlestick patterns with the top performer ranking 1. “Best” means the highest rated of the four combinations of bull/bear market, up/down breakouts. In particular, each evening star begins with a large bullish candle, followed by a small-bodied (bullish or bearish) second candle, before ending with a large bearish candle.

These occurrences were enough to classify this evening star pattern as valid although the entire pattern does not look exactly like a picture-perfect example. As a novice trader, it is important to educate yourself as much as possible if you wish to become consistently profitable in trading. Understanding candlestick patterns and what they tend to forecast is an important part on your personal trading journey. This indecision candlestick pattern helps the traders to give a red flag and thus prevent further buying.

• As such, it usually appears at the end of an uptrend and beginning of a downtrend.
• Candlestick patterns are among the most used and popular chart patterns you can find today.
• The available research on day trading suggests that most active traders lose money.
• The Evening Star pattern can be observed in the EUR/GBP chart below, where there is an established uptrend leading up to the formation of the reversal pattern.
• To confirm the accuracy of the signal, wait for more bearish candlestick patterns or other technical indicators, such as resistance levels or trendlines, that point to a bearish reversal.

Targets can be placed at previous levels of support or previous area of consolidation. Stops can be placed above the recent swing high, as a break of this level would invalidate the reversal. Since there are no guarantees in the forex market, traders should always adopt sound risk management while maintaining a positive risk to reward ratio. It’s a good idea to employ various indicators to help you predict price movements but the evening star pattern can be a solid tool.

Utilizing  stock trade alerts at this stage can be particularly beneficial, providing timely updates and insights that can guide decisions on scaling and adjusting positions. Collectively, these components—the strong initial bullish candle, the gap leading to a smaller-bodied candle, and the conclusive bearish candle—create a compelling signal for market analysts. In this article, we’ll explore the key characteristics as well as how to trade the evening star candlestick pattern. After Doji candlestick, a significant bearish candlestick will form breaching through the levels made by buyers. This candlestick will close below the 50% level of the bullish candlestick. While both patterns share a similar three-candle structure, their meanings diverge.

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Traders also try to confirm the pattern with other technical tools, such as trendlines, resistance levels, and momentum oscillators, before placing short positions in the market. With this strategy, the exit method could be the use of a profit target, using technical indicators to signal a change in market direction, and setting a stop-loss order. The Evening Star candlestick is a three-candle pattern that signals a reversal in the market and is commonly used to trade forex. Correctly spotting reversals is crucial when trading financial markets because it allows traders to enter at attractive levels at the very start of a possible trend reversal.

• The morning star is formed when a small-bodied candle gaps below the preceding bearish candle, and a bullish candle follows it with a close above the first candle’s midpoint.
• This candlestick pattern is also easy to identify as they occur frequently in the charts.
• And you will be able to identify the entry signal known as a “reversal candlestick pattern” which we will now introduce.
• The Evening Star pattern is viewed as a bearish reversal pattern in technical analysis.
• So, to make it a powerful candlestick pattern, you will have to add other technical confluences, for example, resistance or supply zone.

It helps to identify the best price trend reversal levels on the chart. A price pattern represents the activity of traders on the price chart, and candlestick patterns are the best examples of many price patterns. To bolster trading strategies using the evening star pattern, traders can integrate various technical indicators. Additionally, incorporating Fibonacci retracement levels can help identify potential support areas where the market might rebound. Trading professionals seek to educate themselves and predict market movements as much as possible for consistently profitable trading.

Trading Strategy 1: Evening Star With Bollinger Bands

The pattern starts with a bearish candle, followed by a small, indecisive ‘star’, and culminates in a strong bullish candle, hinting at renewed buying interest. The length of the candle bodies is a function of the trading range between the highest and lowest price of that trading day. Trading analysts pay greater attention to open and close prices instead of the trading range of that day while identifying evening star patterns. In particular, while the evening star has a small-bodied candle that can either be bullish or bearish, the evening doji star has a doji candle in the middle. A doji candle doesn’t have a body as the opening and closing prices are virtually the same. The evening star pattern must start green, form a doj on the next candle, then close with a large red candle.

How to trade the evening star forex pattern

Evening stars produce “false signals” just like all other technical indicators, so it is vital to incorporate other tools into your analysis. The next, smaller-bodied candle appears following the large candle in the middle of the large candle, appearing as a pregnant belly. Another difference is that the evening star pattern is a three-candle candlestick pattern, evening star doji while the bearish harami is a two-candle candlestick pattern. Step 2 – After seeing the doji at the failed breakout at resistance, a trader can then begin to watch for the evening star pattern to confirm. With this example, the volume did increase on the third candlestick, and the amount of volume was larger than the previous two candlesticks of the same pattern.

Bulkowski on the Evening Doji Star Candle Pattern

The key difference here is that a triple top has three roughly equally high peaks and develops across a longer timeframe and larger number of candles. Unlike more complicated trading patterns, the evening star pattern has several tell-tale signs that the pattern is valid. The pattern is a three-candle pattern that develops sideways across a price chart, but at the top of an uptrend and at the beginning of a new downtrend.

A downward breakout occurs when price
closes below the bottom of the candlestick pattern. 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. Therefore, traders should not rely solely on this candlestick pattern for trading signals. Conversely, the morning star pattern usually appears at the end of a downtrend and represents a bullish reversal pattern. It starts with a long bearish candle, followed by a small-bodied (bullish or bearish) candlestick, and ends with a long bullish candle. The evening star pattern is a bearish, three-candle Japanese candlestick pattern that appears at the top of an uptrend and is a sign that a rally is potentially about to reverse.

The morning star is formed when a small-bodied candle gaps below the preceding bearish candle, and a bullish candle follows it with a close above the first candle’s midpoint. Similar to the evening star, the morning star pattern is thought to be more dependable when the bullish candle engulfs the bearish candle. Evening star patterns form when the small-bodied candlestick gaps above the prior bullish candle and the bearish candle fall below the middle of the first candle. This candlestick pattern is thought to be more dependable if the bearish candle completely engulfs the bullish candle. A strong sell signal forms when the price closes below the low of bullish candlestick because it represents that sellers have engulfed the buyers, and now sellers are stronger than buyers.

The Risks and Benefits of Using the Evening Star Pattern in Crypto Trading

Set a sell order below the third candle of the pattern to execute a trade using evening stars. Once the order is carried out, a new short position will become available. The procedure of defining market entry with evening stars is rather easy.