Evening Star Signal Pattern

By Vikram 18 Comments 17 Nov 2018

An Introduction

An evening star is a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.

Evening Star Signal Pattern

It is a reversal candlestick pattern which is bearish in nature and appears at the end of an up trend. It is a complex pattern made of three candlelines. The first candle is bullish in nature, the second is indecisive in nature and third candle is bearish in nature. It is so named because just like the planet Venus, which appears just before the sun set, this pattern appears just before price fall.

The evening star is a candlestick pattern containing two long candles and one short candle. The first candle in the pattern is a long bullish candle, indicating a long move up. The second candlestick in the pattern is a short candlestick indicating price consolidation and indecision. In other words, the trend that created the first long, bullish candlestick is losing momentum. The final candlestick is a long bearish candlestick gaping lower than the previous candlestick, indicating a confirmation of the reversal and the beginning of a new trend down.

Formation of Evening Star Signal Pattern

This Candlestick Pattern is formed by the combination of three candlesticks. The first one is a rising white candle, the second is a white or black confusion candlestick and the third is a reversal bearish black candlestick.

The market is in an up trend. The price opens at almost low of the day and as usual the buyers continue to buy. At the end of the session the price closes almost at the top for the time period. This results in the formation of bullish white candle, which is the first candle of the Evening Star Candlestick Pattern.

On the next day or next time period the price opens above the high of the real body of the previous bullish candlestick. Buyers are making new long trades. Those who are already long in the market are also adding to their position. But the smart money wants to unload and starts distributing shares to these ignorant buyers. As the supply increases the momentum of rise decreases. Distribution is slow but firm. At the end of the session prices closes near the opening, either just below or just above the open. This results in a small body of the second candlestick.

Next day is the decision day. Bears are aggressive. The price opens below the real body of the previous candlestick. Through out the session the sellers keep selling. Tremendous increase in the supply over the demand drives the prices low. As the new buyers are all in loss, they also start to sell their positions to minimize their losses. Sensing the change in the trend, the old position holders starts booking profits in their long positions. As the bears continue to increase their short position, the price falls further and at the end of the session the price closes well below the open price resulting in a bearish tall black body of the third candlestick of this Evening star pattern.

Evening Star Candlestick Pattern is a major bearish reversal candlestick pattern. They occur at the top of an up trend.

When traders see the Evening Star, they know that low stock prices are probably on the way. In addition, the Evening Star’s candlesticks’ characteristics can relay further information:-

  • The longer the candles, the greater the reversal force.
  • If there is a gap between the first and second day, the odds of a reversal increase.
  • If there are gaps before and after the star candle, the odds of a reversal are even higher.
  • The lower the third day’s candle comes down in relation to the first day’s candle, the stronger the reversal will be.
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