When trading in financial markets, relying solely on intuition or emotions is not sufficient. It is also necessary to understand the reasons behind price movements, whether they rise or fall. In this context, Japanese candlestick patterns are among the most preferred technical analysis tools that reflect the psychology behind price movements. The "Evening Star" candlestick pattern holds a special place in candlestick analysis and forms the main topic of our article today.
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| The Evening Star |
Topic: Evening Star
Type: bearish
Trend direction: reversal
Opposite pattern: Morning Star
What is the "Evening Star" candlestick pattern?
The Evening Star is a candlestick pattern that indicates a
reversal of an upward trend. This pattern is a major candle formation
that suggests that the upward trend in the markets is coming to an end and a
downward trend may follow. The Evening Star candlestick formation consists of
three candles:
1. Bullish Candle: The first candle is a long bullish candle
that indicates the continuation of the uptrend. It is usually represented as
a green candle with a long body.
2. Star Candle: When the bulls weaken, a "star"
candle is usually formed, often in red color and with a small body. This candle
may have a short wick or sometimes no wick at all. It can rarely appear in
green color as well. Additionally, in some cases, this star-like candle may
form after a gap above the first candle. Moreover, after the star candle, a
downward gap may also occur.
3. Bearish Candle: The third candle is a long bearish candle
that forms after the star candle. This candle has a long body and is usually
red in color, with a length at least half of the body of the first candle
(green/bullish candle).
When the Evening Star pattern is completed, it triggers
sellers for a trend reversal. From this point onwards, prices start to decline.
Therefore, the Evening Star pattern is generally known as a pattern indicating
the end of an uptrend and the possible beginning of a downtrend.
Why is it called "Evening
Star"?
The name of the "Evening Star" candlestick pattern
comes from its symbolic meaning. This pattern's name draws attention to
references to stars in the sky and mythological elements. The word
"Evening" represents the end of the day, while "Star"
symbolizes the evening star seen approaching the end of the day. This
metaphorically signifies the end of an uptrend with the sighting of the star
and the beginning of a new trend. The evening star is a bright star that
appears after sunset and heralds the night. Similarly, the "Evening
Star" pattern is a candlestick formation that signals a transition to a
downtrend.
How to trade with the "Evening Star"
candlestick pattern?
Once the Evening Star candlestick pattern is completed, it
usually indicates the end of an uptrend and the start of a downtrend. If the
pattern appears near a strong resistance level, it can provide a more reliable
trading signal. When the Evening Star pattern appears on a chart, it can be a
signal to take a sell position, assuming that a downtrend is about to begin.
However, it is important to use other technical indicators to confirm the
"Evening Star" pattern before making any trades.
Selling: A short position can be opened after the close of
the red candle.
Stop Loss: The stop loss order can be placed above the
highest level of the Star candle.
Target: When determining the take-profit point, we can use
risk-reward ratios, moving averages, and other tools.
Let's examine an example of trading with the Evening Star
candlestick formation in the British Pound/Swiss Franc currency pair:
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| The Evening Star on the GBP/CHF chart. |
An aspect not to be overlooked: Forex is a risky market. Like any candlestick pattern in financial trading, the "Evening Star" pattern can give false signals. Therefore, it should not be used alone. It should be your priority to verify with other analysis tools.