The Evening Star Candlestick Pattern For Technical Analysis

While they both have a similar construction, each presents a different signal. The traditional Doji is a single candlestick pattern that appears in an uptrend or downtrend to suggest market indecision. In contrast, the Doji Evening Star has a first bullish candle, a middle Doji, and a third candle that confirms the change in trend. Both the morning and evening star patterns are considered to be more complex formations, mostly since they are based on three successive candles.

This bearish candlestick pattern indicates that bullish momentum is losing strength, and bearish sentiment is taking over, potentially leading to a downtrend in the asset price. 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 the level very close to the open price with balanced buying and selling orders.

Trading The Morning and Evening Star Candlestick Patterns

The second candlestick is the star, which is a candlestick with a short real body that does not touch the real body of the preceding candlestick. The gap between the real bodies of the two candlesticks is what makes a Doji or a Spinning Top a star. It can form within the upper shadow of the first candlestick but its real body must not overlap the real body of the first candlestick. The star is the first indication of weakness as it indicates that the buyers were unable to push the price up to close much higher than the close of the previous period. As it has a small real body, the color of the star is not important.

The last candlestick is a long bearish candlestick closing below the first candlestick it indicates the beginning of a new trend. The evening star candlestick is a powerful bearish reversal pattern that can help traders identify potential trend reversals in the crypto market. As with any trading strategy, it is essential to manage risk and maintain discipline to achieve consistent results. The Evening Star is a bearish, top trend reversal pattern that warns of a potential reversal of an uptrend. The first candlestick in the Evening Star must be supportive of the uptrend and, hence, must be light in color and must have a relatively large real body.

Evening Doji Star: Discussion

It should be noted that the 2nd candlestick must obligatorily form a gap with the 1st, but between the 2nd and the 3rd candlestick, the gap is preferable but not obligatory. As for the body of the 2nd candlestick, the color does not matter, even if red remains the ideal. The Morning Star and the Evening Star have a Doji or a Spinning Top as the second candlestick in the pattern that gaps away from the preceding can… My book,
Encyclopedia of Candlestick Charts,
pictured on the left, takes an in-depth look at candlesticks, including performance statistics. If you aren’t certain about taking the trade too quickly, you can look at the RSI divergence, which is another excellent way to find trades in the market.

• There is a gap down for candle two, which is a spinning top or doji – so lots of uncertainty.
• According to Bulkowski’s Pattern Site, the evening star is a fairly reliable predictor of a bearish reversal with 71% accuracy.
• The evening doji star is one of the better performing candlestick patterns.
• Japanese candlesticks are full of information essential to our good reading of the graphs.
• Likewise, whenever the price is below a given moving average, the same affirms a downtrend.

Buyers are willing to buy stocks at a price higher than the previous day’s close. Hence, the stock (or the index) opens directly above the previous day’s close because of the enthusiastic buyer’s outlook. For example, consider the closing price of ABC Ltd was Rs.100 on Monday. After the market closes on Monday assume ABC Ltd announces their quarterly results. The numbers are so good that the buyers are willing to buy the stock at any price on Tuesday morning.

Technical analysts trading this security would consider selling or shorting the security in anticipation of an upcoming decline. The Doji does not in any way signal a reversal is about to happen. In most cases, the Doji candle indicates the market can go anywhere as buyers and sellers fight for supremacy. It is the third candlestick that provides a reliable signal on the direction the market is to go.

Stars, Dojis, and Abandoned Babies — Powerful Reversal Strategies

Meanwhile, retail traders may be buying here unaware that the stock is about to turn. The idea here is to trade pullbacks to the moving average when the price is on a downtrend. Support and resistance levels are great places to find price reversals. The Evening Star pattern is also a mirrored version of the Morning Star candlestick pattern.

The shadow is the lines above and below a candle body and reveals the highest and lowest prices during a certain period. A longer shadow indicates a greater fluctuation of price, vice versa. While identifying an Evening Star pattern, analysts pay more attention to the open and close prices rather than the trading range evening star doji of that day. The best average move 10 days after the breakout is a rise of 6.2%, but just 28 patterns account for the percentage. The best performance
rank over 10 days comes after an upward breakout in a bull market. The rank is 15th, which is quite high, and 199 samples are used, so the rank is realistic, too.

Likewise, because the stock is so extended, short sellers will be initiating their positions as well, adding more supply to the stock. There is also the Doji evening star, which is a little more powerful than the classic evening star, where the star is made up of a Doji. Whatever the quality of the 1 st gap and the star, it will be better to wait for the end of the pattern and for the https://trading-market.org/ red body to form to initiate a position. Mr. Pines has traded on the NYSE, CBOE and Pacific Stock Exchange. In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives. Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts.

Whenever the price struggles to rise above a given moving average, it affirms an area of strong resistance. The emergence of the evening star pattern close to the moving average only confirms the start of a downtrend after a significant move higher. The evening star pattern is considered a reliable bearish signal implying a downtrend is in play after a significant move to the upside. The morning star is a bullish candlestick pattern which evolves over a three day period. The morning star pattern forms when a small-bodied candle gaps below the previous bearish candle, followed by a bullish candle that closes above the midpoint of the first candle. Like the evening star pattern, the morning star pattern is considered more reliable if the bullish candle engulfs the bearish candle.

The concept behind the Doji Evening Star is that buyers are losing control, and sellers are likely to push prices down. It’s important to understand what the price is telling you instead of memorizing candlestick pattern. TrendSpider is a suite of research, analysis, and trading tools (collectively, the “platform) that are designed to assist traders and investors in making their own decisions. Our platform, its features, capabilities, and market data feeds are provided ‘as-is’ and without warranty. The final star variation we will discuss is the shooting star, which occurs after a strong uptrend (or the inverted hammer that occurs after a strong move down). Another extremely powerful version of the doji star is the abandon baby top or abandon baby bottom.

• It usually appears at the top of an uptrend and is a bearish signal.
• The reversal was short-lived, however, as the price recovered just one month later before resuming its downtrend.
• 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.
• Other bearish candlestick patterns include the bearish harami, the dark cloud cover, the shooting star, and the bearish engulfing.
• TrendSpider is a suite of research, analysis, and trading tools (collectively, the “platform) that are designed to assist traders and investors in making their own decisions.
• Lastly, the third day shows a long red candle in which selling pressure has forced the price to around the midpoint of the first day.

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. The resistance level tends to attract more sellers to join the fray and help lower prices. Once the evening star candlestick pattern appears, traders may wish to use it as a signal to place a sell order.

However, it is essential to note that the frequently occurring evening star pattern might not provide accurate trading signals. A failed evening Star breakout occurs when the pattern signals price is likely to tank, only to reverse and start moving up in the continuation of the long-term uptrend. While the evening star is a popular trend reversal signal for short sellers, bulls also use it to exit the market and lock in profits after a significant move higher. The pattern forms when a small-bodied candle gaps above the previous bullish candle, followed by a bearish candle that closes below the midpoint of the first candle. This pattern is considered more reliable if the bearish candle engulfs the bullish candle.

As such, they occur more rarely than other patterns, especially the single-candle formations. A failed breakout may occur if the evening star pattern occurs in a small volume. The insufficient volume needed to push prices lower could result in bulls re-entering the market and overpowering the bears in the process, thus pushing prices back up. 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.

A downward breakout occurs when price closes below the bottom of the three-candlestick pattern. The emergence of a third large bearish signal affirms the shooting star pattern, signaling bears have overpowered bulls and are set to push prices higher. The second one is a small-bodied candlestick that can be bearish or bullish but does not touch the body of the first candlestick.

As you can see below, the price is making lower highs while the RSI is making higher lows, signaling a trend change. As you can see, the three days depicted begin with a long white candle that indicates prices have risen from significant buying pressure. The second day also shows a rise in prices, but the extent of the increase is modest compared to the previous day. Lastly, the third day shows a long red candle in which selling pressure has forced the price to around the midpoint of the first day. It’s advisable to consult various different technical indicators to predict price movements, as opposed to relying solely on the signals provided by one.

This may be particularly useful before major news releases, as the star indicates that the market will lack the belief that the upward trend will continue. However, traders who want to reduce their risk may wish to wait and use the star as a signal, planning to enter the market by selling in a subsequent downtrend. This is because the breakout can follow the initial reversal to a lower trading range. Trades are opened on the close of the third candlestick with stop loss orders placed a few pips above the resistance level.

If the RSI is near the overbought zone (between 70 and 80), the trend is about to reverse. So, with the appearance of the Doji Evening Star, you can confidently enter the trade if the RSI provides another signal that the trend is about to change. All four conditions present in the morning star structure are valid here as well. The length of the candle is a function of the range between the highest and lowest price during that trading day. A long candle indicates a large change in price, while a short candle indicates a small change in price.