Evening Star Pattern

The evening star Candlestick pattern is a price action trading technique used by technical analysts to determine when a trend is ready to change direction. It consists of three candles; a red candle, a small-bodied candle, and a huge white candlestick. Candlesticks represent stock information by displaying open, high, low, and closing prices over a specific time frame. Each candlestick has two wicks, and the difference between the highest and lowest price during a trading day determines its length. Longer candlesticks indicate significant price moves, while shorter ones show minimal price change.

What is an Evening Star Pattern Meaning?

The evening star pattern indicates the start of a downward trend. However, it might be difficult to discern in the jumble of stock price data. Traders typically use price oscillators and trendlines to determine if an evening star pattern has developed, allowing them to correctly recognise it.

Even if it is prevalent among traders, there are other negative indicators. The bearish harami, black cloud cover, shooting star, and bearish engulfing are all bearish candlestick patterns. When attempting to identify trend shifts, various traders will have varied preferences for the patterns to watch for.

Open Demat Account

Your first step to enter share market

Get Started

* By signing up you agree to our Terms and Conditions

How to Identify Evening Star Patterns?

To identify an evening star candlestick pattern you need to recognize a particular type of candlestick formation on a price chart. Below is a step-by-step guide on how to identify the Evening Star candlestick pattern:

• The pattern begins with a large bullish candle, indicating that buyers are in control of the market. This candle should have a long real body, signifying significant upward momentum.
• Secondly, the pattern begins with a big bullish candle which indicates that buyers are in full control of the market. To show a significant upward momentum the candle will have a long real body. 
• In general, the second candle in the pattern is tiny-bodied, such as a little bearish candle, spinning top, or doji. This candle indicates that the market is unsure of itself and that the bullish momentum may be fading.
• A massive bearish candle that begins above the closing of the preceding candle and closes deep inside the first candle's body completes the Evening Star pattern. This bearish candle suggests that sellers are in charge, overwhelming the buyers, and may even be a hint that the upward trend is about to reverse.
• Even though the Evening Star pattern itself is a negative indicator, traders sometimes hold off on acting until they receive confirmation. Let’s now understand how evening star candlesticks work.

Example of an Evening Star Pattern

This candlestick pattern may be identified by the creation of the four candles shown below:

• Small bearish or bullish candle: The second candle is small and suggests uncertainty and a faltering rise.
• A large bearish candle indicates selling pressure from the bears.

The Formation of Evening Star pattern:

Once the candlestick has formed, traders can take a sell position at the start of the following bearish candle. Traders might set objectives at prior levels of support or consolidation. One might set a stop loss above the most recent swing high. Traders should always maintain a good risk-to-reward ratio.

How does the Evening Star Candlestick Pattern Work?

Now that we understand how to identify evening star candlestick pattern, let us figure out how this stock-price chart pattern works: 

• Candlestick patterns are concise ways of presenting information about a stock. They generally represent the open or close prices and high and low prices of a stock. 
• Each of the candlesticks has a candle and two wicks. The length of a candle is the measure of the range between the highest and lowest price points on a trading day. 
• If the length of a candle is long, it is an indicator of higher price changes. Conversely, a small-length candle shows smaller price changes. Long candlesticks represent excessive buying or selling based on the direction of a trend. Similarly, short candlesticks show very few movements in stock prices. 
• This stock-price chart pattern is a beneficial tool for technical analysis. It predicts the future price momentum and investor sentiments—three candles for the pattern in three days, one for each day. 
• On the first day, the large white candle indicates rising prices with strong momentum. Following this sudden price rise, momentum becomes weaker on the second day, making a smaller candle. The third day has a large red candle as the prices open much below the previous day's close. It confirms the formation of the stock-price chart pattern.  
• The evening star is a reversal pattern trend and appears after an uptrend in the charts. It only signals the point where there will be a potential downtrend or reversal in the price.

Advantages and Disadvantages of the Evening Star Pattern

Here are the advantages and disadvantages of the evening star pattern:

Evening Star Pattern vs Morning Star Pattern

Here are the difference between evening star pattern vs morning star pattern:

Conclusion
The three-candle evening star pattern provides excessive help in identifying short-selling opportunities. The pattern is very convenient to spot on a chart which is the best part of it. When combined with other technical analysis tools like horizontal resistance effectively gives new downtrend signals. Therefore traders can use it to decide the entry and exit points during a trade; they just need to download a stock trading app and start trading.