Evening Star Pattern: What Does it Mean & How to Trade?
However, the underlying skill to trade this pattern lies in your ability to understand where the key levels of support and resistance are. According to Thomas Bulkowski, a leading expert on chart patterns, the success rate of the evening star pattern in indicating a reversal is 72%. This is quite significant, but it should be noted that the pattern appears infrequently on the charts. The first being a long bullish candle, the second being a small candle, and the third candlestick being a long bearish candle.
Evening Star vs. Morning Star Pattern
In this article, we’re going to cover the evening star pattern and related topics such as how to improve the pattern and trading strategies. Any trader going bear on the Google (GOOG) October 20th, 2021 daily chart profited nicely due to luck. Data-driven traders understand that the best way to profit from the evening star is to capitalize on this pattern’s volatility. Trading Futures and Options on Futures involves a substantial risk of loss and is not suitable for all investors. You evening star candlestick should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources.
- The Evening Star Candlestick Pattern is a significant technical indicator in finance.
- This means it fails to accurately forecast a down move 30-35% of the time.
- We have no knowledge of the level of money you are trading with or the level of risk you are taking with each trade.
- In conclusion, the Evening Star Candlestick Pattern is a reliable technical indicator that can signal a bearish reversal in the market.
- Depending on the strength of the trend, different levels are more likely to work better with the Evening Star pattern.
Check Volume for Validation
Another popular way of trading the Evening Star candlestick is using the Fibonacci retracement tool. To find a bearish RSI Divergence we want to see the price on an uptrend first, making higher highs and higher lows. The pattern is bearish because we expect to have a bear move after an Evening Star appears at the right location. Let’s uncover whether the evening star could illuminate the way for your own trading endeavors.
Just wait for a pullback to start, and then spot when the Evening Star appears. It’s simple, the Evening Star pattern is traded when the low of the last candle is broken. When trading the Evening Star, we want to see the price first going up, making a bullish move. Usually, it appears after a price move to the upside and shows rejection from higher prices. You should also place a stop loss at the high of the second candle to protect yourself from significant losses.
- Hence, using it during a downtrend is improper, as market sentiment is already bearish with a downward price trajectory.
- It’s extremely essential to consider other factors like volume, trendlines, and support/resistance levels to make well-informed trading decisions.
- It starts with a long bearish candle, followed by a small-bodied (bullish or bearish) candlestick, and ends with a long bullish candle.
- Along the way, we’ll look at it’s definition, how to identify it with state-of-the-art software, ideal trading setups, and other commonly asked questions.
- A trader would thus look to close any open long position and short (sell) the market.
When is the best time to trade using Evening Star Candlestick?
Check out the GBP/USD example below for a real-world illustration of the process. The Evening Star pattern becomes even more reliable when it appears below a key moving average, like the 50-day or 200-day SMA/EMA. This adds weight to the bearish signal, especially if the price continues downward and crosses below the moving average after the pattern forms.
This will help you better identify a valid evening star pattern, and also where your trade targets are. The doji pattern occurs when the open price of a stock is the same or nearly the same as the close price. This information can be an indicator of what will happen the next day. On the first day, a long white candle shows a price rise from strong buying pressure. On the third day, a long red candle indicates selling pressure, bringing the price down to the midpoint of the first day. Long candlestick bodies are indicative of intense buying or selling pressure, depending on the direction of the trend.
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