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 signals a possible reversal of an upward trend. In simple terms, it's a way for the market to tell us that the strong buying momentum is slowing down and a downward move might be about to begin. This pattern is made up of three distinct candles, each playing an important role in the story.
Bullish Candle
The first candle is a big bullish candle that continues the uptrend. It is usually green with a long body, showing that buyers are still in control and pushing the price higher.Star Candle
Next comes the "star" candle, which shows that the bulls are losing steam. This candle usually has a small body and is often red, but sometimes it can appear green. Its wick can be short or sometimes even absent. Occasionally, this star candle forms with a gap above the first candle, highlighting the temporary indecision in the market. After this star, a downward gap may also appear, which adds to the signal that the trend might be changing.Bearish Candle
The third candle is a long bearish candle that appears after the star. It is usually red and has a body at least half the size of the first bullish candle. This candle clearly shows that sellers have stepped in and are taking control of the market.Once all three candles are in place, the Evening Star pattern is complete, and it often triggers selling activity. Prices tend to start moving down from this point, making this pattern a reliable signal for the end of an uptrend and the likely start of a downtrend. In short, the Evening Star is like a market warning light. It shows that the excitement of buyers is fading and the sellers might soon take over. Watching for this pattern can help traders prepare for a shift in the market and adjust their strategies accordingly.
Why is it called "Evening Star"?
The "Evening Star" candlestick pattern gets its name from the story it tells on the chart and its symbolic meaning. The term "Evening" refers to the end of the day, while "Star" draws attention to the bright star you can often see in the sky as night approaches. Together, the name creates a visual metaphor: just like the evening star signals the end of daylight and the arrival of night, this pattern hints that an uptrend might be coming to an end and a downward move could be about to start.
Think of it this way: the evening star in the sky is bright and noticeable, and it appears right as the day is finishing. Similarly, on the chart, the Evening Star pattern stands out because it marks the peak of buying momentum and signals that sellers may be taking control soon. It's a way of saying that the market is transitioning, and traders should pay attention to possible reversals.
So, the name is not just poetic, it's also very descriptive. It gives a clear mental image of the market slowing down after a strong rise and preparing to shift direction, just like the evening star signals the change from day to night.
How to trade with the "Evening Star" candlestick pattern?
Once the Evening Star pattern shows up on a chart, it is usually a sign that the uptrend is losing momentum and a downward move could be starting. This pattern becomes even more reliable if it appears close to a strong resistance level because it suggests that buyers are struggling to push the price higher. When you see the Evening Star forming, it can be a good opportunity to consider taking a sell position. Essentially, it's the market's way of signaling that sellers may soon take control. However, it is always wise to be cautious. Using other technical indicators, such as moving averages, support and resistance levels, or momentum tools, can help confirm that the pattern is valid before you make a trade.
Another tip is to pay attention to your risk management. Setting a stop loss above the star candle or near the resistance level can help protect your capital in case the market does not move as expected. Meanwhile, setting realistic target levels gives you a plan for exiting the trade once the downward move occurs. Simply put, trading the Evening Star is about patience and planning. Recognize the pattern, confirm it with other signals, manage your risk, and then take action. By following these steps, you can increase your chances of taking advantage of possible trend reversals while keeping losses under control.
- 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.