The Evening Star Candle Pattern is a candle pattern formed by three candles and signals a potential reversal in the market. In this article we will show you how to identify them in the right market position with real chart examples.
The Evening Star Candle Pattern is a three candle pattern which signals a potential reversal in the market. The Evening Star Candle Pattern is Bearish and should be identified as a signal when occurring in an up-trending market or at the top of a range.
Evening Star Candle Pattern Criteria:
- The first candle is a large green (bullish) candle followed by the star.
- The star is a small real body that gaps away from the large real body preceding it.
- The colour of the star is not important. The star is a warning that the prior trend may be ending. The star’s small real body represents a stalemate in the tug of war between bulls and bears.
- An Evening Star should ideally have a gap between the first and second real bodies and then another gap between the second and third real bodies. However the second gap is rarely seen and is not necessary for a valid pattern.
- The main concern should be the extent of the intrusion of the third candle’s red (bearish) real body into the first day’s green (bullish) real body.
- If there is light volume on the first candlestick session and heavy volume on the third candlestick session. This would show a reduction of the force for the prior trend and an increase in the direction force of a new trend.
Quick Reference Guide – Candlestick Basics. If you need a reminder of what candlesticks are have a look at our free PDF – Candlesticks Explained.
The criteria and examples above are just the technical definitions of this pattern. However patterns are only useful with context and with real chart examples.
No pattern will ever exactly match the criteria and in order to be a useful signal must occur in the correct place in a trend. Let’s start by looking at the classification table for this pattern.
Evening Star Candle Pattern Classification Table
|Number of Candles In Pattern||3|
|Market Conditions: Range, Down-trend, Up-trend||Up-trend, Ranging|
|Position: Top, Bottom, Range||Top|
What Price Action Does The Evening Star Pattern Represent?
All candlestick patterns are formed by price action. But the popular ones represent price action that may have significance in signalling the direction of the market.
The Evening Star Candle Pattern is a bearish reversal pattern so the price action should reflect in the first instance a bullish (up) trend that loses momentum followed by a bearish signal.
This is represented in this three pattern candle with an initial green candle with a large real body which should be seen in an up-trend or the top of a range. This is followed by a second candle that gaps up.
This is indicative of positive upward momentum. However, the second candle forms a star when it loses momentum and closes with a relatively small real body. This is an indication that the momentum has slowed.
The final element of a bearish reversal pattern is the formation of the third bearish candle. This ideally gaps down from the star and is move valid the further it extends into the real body of the first candle.
This initial bullish momentum followed by a stalled candle and then bearish reversal candle can be seen as a potential signal that the bulls cannot extend the trend and a potential change in direction is at hand.
As with all reversal patterns, these signals are better when seen after a sustained trend in one direction. The signal is best when formed in a trend but can also be valid when formed at the appropriate place in a ranging market.
Evening Star Pattern Example With Confirmation
In this example on the GBP/USD market the price action had been in a good up-trending direction towards a key round level resistance area.
A strong green candle broke the round level followed by a candle that gapped up on the open However, the push quickly stalled and the second candle only achieved a small real body.
The third candle gapped down and closed as a red (bearish) candle completing the Evening Star Candle Formation. This along with the resistance level was too much for the market to break through and a reversal occurred.
In What Market Conditions Does The Evening Star Pattern Become A Signal?
To recap – the Evening Star Candle Pattern is a potential signal when occurring after a sustained up-trend or at the top of a range.
It is ideal to have a gap up to the middle candle (the star) and a gap down to the third bearish candle but it is not necessary.
The deeper the third candle penetrates into the gains of the first green candle’s real body, the more valid the signal becomes.
As with any bearish reversal signal it should be treated with caution and may just be an opportunity to cover longs rather than as a signal to short the market.
Let’s look at some more examples.
Evening Star Candle Pattern In An Up-trending Market
An up-trending market is one where the price action generally moves down over time and is characterized by higher lows and higher highs.
In this EUR/GBP market example the market was uptrending and then an Evening Star Candle Pattern formed. The market then reversed and started moving into a down-trend.
Evening Star Candle Pattern In A Ranging Market
A ranging market is one where the price action moves up and down between two sets of support and resistance. This is also known as a sideways, balancing or horizontal market. In essence the price action is struggling to break out of the range decisively either on the upside or downside.
Although not traditionally used as a signal in a ranging market, it can still be a useful tool to help define the top of a range or as a rejection of a breakout.
This is because the price action it represents (stalled momentum) is the type of signal that is useful to indicate that the market is less likely to break out of the range to new highs.
In the EUR/GBP market example below you can see an example where an Evening Star formed at the top of the range which was a helpful indication that the market would hold true to that area of resistance.
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Important Information About Candlestick Patterns
Interpretation Of Candle Patterns:
It is important to note that these patterns were originally identified on the daily timeframes of index charts, which is still where they are the most useful. However, this does not mean that they cannot be used for other markets or time frames.
No signal is perfect and should never be used as such. Any patterns that you identify only signals a potential move based on the fact that history repeats itself and forms regular patterns in similar situations.
But past performance is no guarantee of future results! So always treat these patterns with care and think of these guidelines when using them.
Best practice guide for trading of candle patterns:
- No pattern is ever perfect. Be aware that patterns will form slightly differently each time and in different markets.
- Use them as consistently as possible. Even though you will never find patterns exactly the same, you should always implement a consistent ruleset when identifying and using patterns.
- It is never a guarantee, only an indication.
- Make sure you are using it in the right context. For example if it is a continuation pattern then don’t use it to trade reversals!
- Use multiple signals (confirmations) to have more confidence in your trading.
Related Candle Patterns
Shooting Star Candle Pattern
Morning Star Candle Pattern
Evening Doji Star Candle Pattern
Morning Doji Star Candle Pattern
Abandoned Baby Top Candle Pattern
Abandoned Baby Bottom Candle Pattern
More About Candlestick Patterns
If you are interested in reading more about candlestick patterns you can find our articles on this topic here: https://www.nothardtrading.com/category/candle-patterns/ or choose a pattern below to read more.