The Evening Star pattern is a type of reversal pattern of asset price charts. It usually appears at the top of an uptrend and is a bearish signal.

The Evening Star is a three-candle, bearish reversal candlestick pattern that appears at the top of an uptrend. It signals the slowing down of upward momentum before a bearish move lays the foundation for a new downtrend.

What is the Evening Star pattern?

An evening star is a stock-price chart pattern used by technical analysts to detect when a trend is about to reverse. It is a bearish candlestick pattern consisting of three candles: a large white candlestick, a small-bodied candle, and a red candle.

Evening star patterns are associated with the top of a price uptrend, signifying that the uptrend is nearing its end. The opposite of the evening star is the morning star pattern, which is viewed as a bullish indicator.

 

How to identify an Evening Star?

The evening star pattern is considered a very strong indicator of future price declines. Its pattern forms over a period of three days:

  1. The first one is a long-body candle, representing a large rise in price with the close price settling above the open price. This bullish candle reflects an upward momentum of the asset price.
  2. The second candle is the “star” with a small body (either bullish or bearish) or without a body (neutral). The star feature indicates that the asset price closes at a level very close to the open price with balanced buying and selling orders. The star signals a slow-down in the previous bullish momentum. There should be a gap up from the first candle to the star in an ideal Evening Star pattern. It means that the open price increased rapidly from the preceding close price with very few or even no transactions happening in the meanwhile.
  3. The third candle is bearish, with the close price lower than the open price. The upward trend shown in the first candle has been reversed, and the price gain has been eliminated. This candle confirms the Evening Star pattern (ideally with a gap down) and gives a selling signal.

 

What does Evening Star tell traders?

The Evening Star pattern is a useful tool for technical analysis, as it can predict investor sentiment and change in price momentum.

As discussed above, an Evening Star pattern consists of three candles, one for each day. On the first day, with a long bullish candle, the asset price moves upward with strong momentum. After a sudden increase in price reflected by a gap up, the momentum starts to weaken on the second day when the star appears.

However, the second day is still an indecision day between the bullish and bearish sentiment. If there is a gap down as the market opens on the third day, it is an indication that the momentum will be reversed, signaling traders to make a short decision. When the price closes much lower at the end of the third day, an Evening Star pattern is thus confirmed.

Evening Star Doji:

Doji candles are formed when the market opens and closes at the same or almost the same level.

This indecision candlestick pattern helps the traders to give a red flag and thus prevent further buying.

The formation of the bearish candle after the Doji signals the bearish confirmation.

Evening Star vs. Morning Star Patterns

In contrast to the Evening Star pattern, a Morning Star pattern signals a trend reversal from bearish to bullish. The first candle of a Morning Star pattern is a long bearish candle, indicating a downward price momentum. The “morning star” is a short-body (either bullish or bearish) or Doji candle.

The third candle is a bullish one, which confirms the reversal and covers most of the first candle loss. Ideally, there is a gap down from the first candle to the morning star, a gap up from the morning star to the confirmation candle.

 

Pros and cons of evening star candlestick?

The Evening Star, like most candlestick patterns, should be assessed in line with the current trend and whether there is supporting evidence in favor of the trade when looking at an indicator. Below are the advantages and limitations of the Evening Star pattern:

ADVANTAGES LIMITATIONS
Occurs frequently in the forex market A failed reversal is possible, and the price could move further up
The pattern presents well-defined entry and exit levels
Evening Stars are easy to identify

 

Key Takeaways:

  • Evening Star is a candlestick pattern appearing at the end of the uptrend and signals that an uptrend is going to take place
  • It is a bearish candlestick pattern that consists of three candles: a large bullish candlestick, a small-bodied candle, and a bearish candle.
  • An evening star is a candlestick pattern used by technical analysts to predict future price reversals to the downside.

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