Predict Trend Continuation and Reversal Asia Forex Mentor

When the price closes much lower at the end of the third day, an Evening Star pattern is thus confirmed. The first day consists of a large white candle signifying a continued rise in prices. The Evening Star consists of three candlesticks, with the middle candlestick being a star. Evening star candles that appear within a third of the yearly low in a bull market perform best — page 338. Secondly, the trader must confirm that the pattern that is seen on the chart is typically the Evening star pattern, not anything else.

So, we have first a green candle, second a small star-like candle of any colour and the third a red candle. This combination is known to traders as the Evening Star candlestick pattern. When the first candlestick has a lower volume, and the third candlestick has a higher volume, the pattern is considered to be more reliable. Therefore, the beginning of an evening star pattern can be useful in identifying viable selling opportunities at the time of bearish momentum.

Evening Star Candlestick Pattern: Overview, Types, Example

Afterward, the price was corrected and edged lower as part of the bearish reversal pattern. The Relative Strength Index is commonly used to predict areas where an Evening Star pattern is more reliable in signaling a bearish reversal. The chart above clearly shows that the 50-period moving average shows strong resistance areas.

Furthermore, you can choose to sell when the price goes above the stop-loss price or Y. Another important insight into the nature of the reversal can be derived from the way in which the third candle comes down. The optimal risk-reward ratio is selected using profit per bar. Will usually ship within 1 business day of receiving cleared payment.

Evening Star Pattern: What It Is, What It Means, Example Chart

When gaps exist in the area preceding and succeeding the star candle, there is a higher probability of a reversal. This professional crypto trader stacked satoshis and took profits a few days later. But forex traders should look in the opposite direction. And I will suggest you take help from other indicators charterprime review and trade parameters like volume, support & resistance to improve your accuracy. The formation of the Doji candle at the top of the trend indicated the bulls are losing momentum. And notice that, the pattern was formed at the top of the trend, the indecision candle’s high was the top price level.

TradingWolf and the persons involved do not take any responsibility for your actions or investments. The second candle is a small candlestick with a short body and does not touch the body of the first. Evening Star pattern occurs frequently in the charts and it also presents well-defined entry as well as exit levels. The candlestick on Day 2 is quite small and can be bullish, bearish, or neutral (i.e. Doji).

What is a Marubozu candlestick pattern and how to trade it?

But the next day, the price formed a small-bodied candle which indicates indecision, by forming this pattern price is telling that the bulls are losing conviction. With the market on an uptrend, the bulls are in complete control. Traders will often look for signs of indecision in the market where buying pressure subsides and leaves the market somewhat flat. This is the ideal place for a Doji candle to appear. On 4, 5, and 8th November, the Coca-Cola stock made an evening doji star.

• The second day consists of a smaller candle that shows a more modest increase in price.
• The shadow is the lines above and below a candle body and reveals the highest and lowest prices during a certain period.
• The chart above clearly shows that the 50-period moving average shows strong resistance areas.
• There should be a gap up from the first candle to the star in an ideal Evening Star pattern.

The long wick and shadow and characteristically a small body indicate the hesitation on the part of bulls and bears. Traders are not sure whether to buy the stock for a further uptrend or to sell it in the hope of the ensuing downtrend. It has a long wick and shadow but the body is very small. The opening price and the closing price of this candle are close to one another. The second candle leaves a gap with the previous large candle.

Similar to the cosmic Evening star, this pattern also suggests that dark days are ahead. In other cases, the bulls may try to regain control after a downtrend is initiated with an gartley pattern. When using the Evening Star reversal candlestick pattern, pay attention to the second candle.

What is the psychology behind Evening Star Pattern formation?

Every candlestick pattern forms because of market participants and their actions are controlled by their emotions like greed, fear, FOMO, etc. and it is called psychology. Though this pattern is more complex than other candlestick patterns, I will simplify the concept for you in the post. Evening Star Pattern is one of the most useful and popular candlestick patterns. Recognizing the Evening Star on charts involves more than simply identifying the three main candles. You need to understand the previous price action and where the pattern emerges within the existing trend.

How to use VWAP (Volume Weighted Average Price) Indicator?

If you sell, never forget to put a stop-loss above the star. And, if you have a long position, the closing can be a good thing. Check the economic calendar and blend your analysis with news and fundamental data.

The size of the candle shadow, also known as the wick of a candle, doesn’t matter. Traders pay more attention to the body than a candle’s shadow. Sometimes the small patterns can form right before that breakout occurs and not being able to see that can hurt.

A star with larger gaps between the star and two other candles leads to a more potent evening star. Typically, reversals are seen in the cup candle pattern market once this pattern is confirmed, which further results in a downtrend. Traders are constantly looking for patterns to trade.

Watch our video above to learn more about evening stars. They help traders identify whether bullish buying opportunities or bearish selling opportunities are available. The morning star is represented by three candlesticks – a red candle, a Doji, and a green candle – formed during three trading sessions.

While identifying an Evening Star pattern, analysts pay more attention to the open and close prices rather than the trading range of that day. The Gravestone Doji is a Japanese candlestick in which the open and close price of the candle is at the same level or is very close to the same level. There we will find the combination of the aforementioned pattern. Though in a real scenario, we do not find the exact formation of candles in the ways it should be. Analysts and traders have found that they occur under specific market conditions.