Evening Star Candlestick Pattern: A Trader’s Guide to Spotting Reversals
The bullish Meeting Lines pattern is also similar to the In-Neck pattern, though the In-Neck pattern is … As always, the risk/reward ratio should be taken into consideration and disciplined money management should be exercised. The four main advantages of the Evening Star Candlestick Patterns are that they are easy to spot, they have high reliability and flexibility, and they have a clear stop-loss level. Technical analysts who trade this investment can think about shorting it or selling it in expectation of a future decline. As we mentioned earlier, one great method to know when the market is overbought is to look at the price in relation to the upper Bollinger band. If the price is higher than the upper band, the market has overextended itself to the upside, and we can expect it to soon turn around, being typical behavior of a mean-reverting market.
It is a large bullish candlestick with small wicks on both ends that closes close to the open of the first long bearish candlestick. Both are bearish reversal candlestick patterns that occur after a significant price move. The only difference between the two patterns is in the second candlestick as part of the three candlestick patterns. With trend reversal now confirmed, technical analysts use this opportunity to eye short positions as soon as the third candlestick closes and confirms the bearish reversal. 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.
Traders use the high of the evening star pattern as the stop-loss level. The closest support level or prior low can be used by traders as a profit objective for their short position. Evening Star is a reliable bearish reversal candlestick pattern with a success rate of about 70.2%. Its success rate in predicting bearish reversal is enhanced by using other technical indicators. For instance, when the pattern appears near a strong resistance level, there is always a strong likelihood that the price will correct from the previous uptrend and move lower.
TradingWolf and the persons involved do not take any responsibility for your actions or investments. The idea here is to trade pullbacks to the moving average when the price is on a downtrend. Since we are looking for moves to the downside, we want to trade the Evening Star using resistance levels. Everything that you need to know about the Evening Star candlestick pattern is here.
It is crucial to remember that there is no “holy grail” in trading and we do not deal with certainties but merely probabilities. In our experience, an essential aspect to hone to become consistently profitable over the long-term is proper risk management. Hence, using it during a downtrend evening star candlestick is improper, as market sentiment is already bearish with a downward price trajectory. On the other hand, spotting the pattern during a non-trending (sideways) market is insignificant, as there is no trend to reverse in the first place.
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Traders use price oscillators and trendlines to confirm its presence. A candlestick pattern is a way of presenting certain information about a stock. It represents the open, high, low, and close price for the stock over a period of time. So, the long downtrend was a falling wedge pattern, and then broke out into a rising wedge pattern.
Traders trade this pattern by selling or shorting the asset after the formation of the bearish candle, with a stop loss placed above the pattern high. Profit targets are established either at the closest support level or at a previous low. These indicators can produce bearish divergence signals, which identify a weakening uptrend.
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The evening star candlestick pattern meaning is a warning of a potential top or reversal in an uptrend. Evening star patterns are three candlestick patterns found on stock charts. When this pattern forms, it can be seen as a sign of bad things on the horizon. An evening star pattern consists of three candlesticks that form near resistance levels. The first candle is bullish, the second is a spinning top or doji, and the third is a bearish candlestick. The evening star pattern is a bearish reversal pattern consisting of three sequential candlesticks, indicating a probable trend reversal to bearish from bullish.