When compared to other candlestick patterns, such as the shooting star, it is much more accurate in detecting a reversal. The evening star pattern is a bearish candlestick pattern used in technical analysis to identify the potential end of an uptrend. Evening Star pattern is a bearish reversal pattern and Hanging Man is a bearish pattern but they are different in structure and context.
Chart Examples and Real-World Applications
In this scenario, we can look at the volume to confirm the sell-off needed for a successful reversal to occur. Meanwhile, an RSI divergence, where the price forms a higher high leading to the evening star while the RSI forms a lower high, confirms weakening bullish momentum. Generally, the evening star pattern has a success rate of around 55-68%. The pattern’s success rate highly depends on the specific asset class, trade setup, and current market environment. That said, it is difficult to pinpoint its exact success rate due to numerous factors that can influence the pattern’s success rate at any given time.
What are the pros and cons of evening star candlesticks?
It’s a bearish reversal pattern, indicating a potential shift from an uptrend to a downtrend. The pattern typically appears at the top of an uptrend, suggesting that the bullish momentum is weakening and a downward trend is likely to follow. Moving averages are useful for determining the overall market trend by smoothing out price movements. When the Evening Star candlestick pattern aligns with significant moving averages, it frequently signals a bearish reversal, offering an opportunity for traders to enter a short position. Evening star pattern candlestick acts as a standard tool to identify the reversal of upward security price momentum into a bearish one. Besides being the most reliable bearish indicator, it rarely appears in the evening star pattern charting.
Ignoring Market Context
For traders, being able to recognise evening star patterns is useful for finding short-trade opportunities, or exit signals for active long trades. This is an example of an evening star pattern on a daily chart of $DASH. As the price moved to the apex of the rising wedge, you’ll notice it created a shooting star pattern. In the AAPL chart below, you can see two Evening Star patterns that formed, and each led to a significant downward price movement. A trade placed at the opening of the next candle after each pattern, with a stop loss above the pattern and profit target at the next support level, would have been very profitable. The Evening Star, as depicted in candlestick chart patterns, serves as a modern reflection of these ancient beliefs, symbolizing the transition from a bullish trend to a possible downturn.
- Before we discuss the optimal star candlestick trading strategy, let’s discuss how most traders lose money trading this pattern.
- The formation of the evening star candlestick pattern varies from one asset to another.
- The evening star candlestick pattern is a useful technical analysis tool for traders as it provides a visual representation of a likely trend reversal.
- On the ChartRider platform, the community embraces the dual nature of the Evening Star—as both a warning and an opportunity—as they navigate the fast-paced world of trading.
- This pattern indicates a trend change from up to down, sellers are in control of the market.
Traditional technical analysis teaches that these patterns are reversals, but the data shows that they likely lead to future short-term volatility. Data-driven stock market traders will enter long after the price crosses below and then back above the pattern’s low, setting a stop loss of one ATR. 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. The Abandoned Baby is a rare but effective reversal pattern that can be either bullish or bearish, depending on its position in the trend. On the other hand, swing traders often rely on daily or weekly charts to spot the pattern, looking for more significant reversals that can last several days or weeks.
This strong pattern warns market participants of a forthcoming sell-off of a trading asset and allows them to close long positions at a more attractive price. The Evening star pattern is a bearish version of the Morning star candlestick pattern. Following the evening star, a hanging man, a bearish marubozu, and a shooting star with a long upward shadow formed. The combination of these patterns confirmed bullish weakness and active asset sales.
Comparison with Other Candlestick Patterns
Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success. The evening star pattern is a fairly accurate pattern that has a 71% accuracy rate per Bulkowski’s website. Kalshi dominates prediction markets with 62% trading volume, showcasing rapid engagement and user confidence compared to Polymarket.
There is an existing upward trend as the price is above the fifty-day simple moving average. You may also want to practice trading evening star patterns in a risk-free demo evening star doji account before putting real capital on the line. Platforms like Pepperstone offer demo accounts with virtual funds so traders can test out strategies. The candlestick evening star gets its name from the stars that come out in the night sky at dusk.
- You’ll notice that the pattern almost resembles a dark cloud cover pattern, with part of the second candlestick covering the first.
- The pattern is confirmed when the third candlestick has a bearish close below the second candlestick.
- This method centers around spotting critical resistance zones on forex charts where a price reversal is likely to occur.
- This pattern is considered a strong indication of a potential price reversal.
The market closes roughly where it opened, thus producing a Doji or a spinning top candlestick pattern. The appearance of the bearish candle on the third candle demonstrates that the bears have taken control of the prices. The evening star candlestick pattern is a three-candle bearish reversal pattern that historically leads to volatility. The best evening star trading strategy is a bullish mean reversion strategy in the stock and crypto markets and a bearish mean reversion strategy in the forex market.
How Accurate is the Evening Star Pattern?
The emergence of the evening star indicates buyers’ rapid weakening and shows a shortage of long positions in an asset. When the third bearish candle forms, market supply begins to engulf the weakening demand. This leads to an acute decline in prices and a series of liquidations by speculators, which fuel a further decline in quotes.
This means it fails to accurately forecast a down move 30-35% of the time. Evening stars can appear on any timeframe, but many traders look for them on the daily chart where the signals tend to be clearer. It’s not a pattern to act on blindly—but in the right context, such as after a sustained bullish trend, it’s a useful sign that buyers might be losing control. In addition to the Evening Star, several triple candlestick patterns provide valuable insight into potential trend continuations or reversals. The evening star and shooting star patterns both appear at the top of an uptrend and indicate bearish reversals but differ in structure and context. This heightened level of uncertainty makes the evening star doji a stronger and more reliable bearish signal compared to the standard evening star pattern.
The evening star’s second candle is typically a doji or spinning top with a candlestick close above the preceding candle. The highlighted area shows an evening star pattern at the base of a downtrend. This evening star formed at the base of a downtrend, and you’ll notice that it broke out. The evening star pattern serves as a reliable indicator for predicting future price declines, signaling when an uptrend might reverse. While it can be challenging to identify amid market noise, this pattern is especially valuable when confirmed with additional tools such as price oscillators and trendlines.
With AI-Signals’ dynamic support and resistance identification tool, traders can easily spot these critical levels in real time, helping them make more informed trading decisions. This pattern typically emerges at the peak of an uptrend, often around key resistance levels or when market conditions indicate overbought territory. Being aware of these variations can help traders evaluate the robustness of an evening star signal. The pattern is strongest when accompanied by a doji or spinning top, indicating clear indecision and reversal potential. Now that you know what is evening star candlestick it’s easier to identify this candle pattern on a price chart. If you are familiar with the Morning Star and Evening Star patterns, the contrast is clear.
Long Legged Doji Candlestick Pattern: Backtest Findings
The first should close near its high, the second should gap up or open near the prior close, and the third should close deeply into the first candle’s body. The pattern’s reliability increases when the middle candle is a doji, known as the Evening Doji Star. Stop Loss can be placed above the high of the second or third candle, i.e. the candle with the highest high of the whole formation. If the CMF turns negative or dips below 0 while the evening star forms, it suggests that distribution is happening, i.e., smart money is selling into the rally. With AI-Signals’ AI-powered Fibonacci tool, these critical zones are automatically detected in real time, helping traders make more precise decisions.
Morning Star appears after a downtrend and signals bullish reversal, whereas Evening Star appears after an uptrend and warns of bearish momentum. This candlestick pattern is also easy to identify as they occur frequently in the charts. But one should also note that if it signals a failed reversal, then the price could move further up. Whereas, The Morning Star is a candlestick pattern that appears at the end of the downtrend and signals upside reversal.