For traders seeking to predict market reversals, candlestick patterns are a key visual tool in technical analysis. The Evening Star Candlestick Pattern is a prominent bearish reversal signal, especially when it occurs after an established uptrend.
This guide provides instruction on identifying the evening star candlestick pattern, understanding its reliability, and using it in conjunction with indicators such as the RSI and CMF to improve trade entry and exit points.
What is the Evening Star Candlestick Pattern?
The Evening Star Candlestick Pattern is a three-candle formation that signals the end of a bullish trend and the start of a potential downtrend.
Components of the Evening Star Pattern:
Second Candle (Small-bodied Candle)- The second candle is a small candle, often a doji or a spinning top candlestick. The colour of the candle can be red or green. This suggests an decision between the buyers and sellers.
Third Candle (Bearish Candle)- The third candle is once again a large candle that starts below the second candle and ends deep within the first candle, below the middle of body of the first candle.
The psychology behind this pattern is simple: bulls dominated at first, then uncertainty sets in, and finally, bears take control.
How to Trade the Evening Star Candlestick Pattern?
Once the pattern is in sync with other indicators and price action, trade the pattern in following manner.
Entry Point- Once you think the evening star pattern can be a potential trade, enter short position near the close of third candle. Enter below low of third candle for lesser risky entry.
Stop-Loss Placement- Place your stop-loss just above the high of second candle.
Target- The next support area becomes your target or use Fibonacci tool or a risk reward ratio of 2:1.
Enhance Your Strategy: Evening Star + Technical Indicators
The Evening Star pattern should always be used, combined with other technical indicators and chart context. Never use it in isolation to avoid frequent whipsaws. You will learn, how to combine this pattern with other technical parameters in the paragraphs that follows.
Pattern Near Resistance
If the pattern forms near a known resistance zone, it has a much higher chance of success. Traders often use EMA lines, Fibonacci levels, or previous highs to mark resistance.
Evening Star + RSI Divergence
If price is making higher highs but the RSI (Relative Strength Index) is making lower highs, it’s a bearish RSI divergence. If an evening star forms during a bearish RSI divergence, it validates the selling pressure.
3. Confirm with Chaikin Money Flow (CMF)
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.
See some chart examples of trading with evening star candlestick pattern below.
Key Takeaways
| Insight | Description |
|---|---|
| Evening Star | 3-candle bearish reversal pattern |
| Ideal Conditions forms | after an uptrend, near resistance |
| Confirmation | RSI divergence, CMF < 0, price closes below pattern |
| Entry | After third candle closes, or next candle breaks the low |
| Stop Loss | Above the second candle or resistance |
| Profit Target | Use support levels, Fibonacci, or 1:2 risk-reward |
Final Thoughts
The Evening Star candlestick pattern constitutes a highly effective method for pinpointing potential market peaks, particularly when integrated with technical indicators such as the RSI and CMF. As a beginner, don’t rely on it in isolation. Look for confluence of signals such as key resistance zones, volume weakness, and indicator divergences to increase your trading edge.
Mastering such patterns with patience and proper risk management can help you make confident trading decisions and avoid emotional trades.
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