Evening Star Pattern
By: Danelle
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Evening Star Japanese Candlestick Pattern
This is a major top reversal pattern formed by three candlesticks. The first candlestick has a long white body; the second one is a black or white, small real body. It is characteristically marked with a gap in higher direction thus forming a star. In fact, the first two candlesticks form a basic star pattern. Finally we see the third black candlestick with a closing price well within first candle's white real body. This pattern clearly indicates that the market turned bearish.
The Evening Star Pattern is a strong three candle pattern at the top of an uptrend. This is the bear reversal opposite of the Morning Star.
The body of the first candle is white, confirming the current uptrend.
The second candle is an indecisive formation. This is the “star” of the formation and the trading range should be small for the day. It could be black or white. Black is a stronger indication.
The third candle is black and should close at least halfway down the white candle.
Rules to identify the Evening Star pattern:
- The upward trend has been fairly consistent for a period of time.
- The body of the first candle is white, continuing the current trend.
- The second candle is an indecision formation. This "Evening Star".
- The third black candle should close at least halfway down the white candle of the first day.
Potential Signal Strengtheners:
- The longer the white candle and the black candle, first and third days, the stronger the reversal.
- The more indecision that the star day shows, the better chance that a reversal will occur.
- A gap between the first day and the star day adds to the chance that a reversal is occurring.
- A gap before and after the star day is even more indicative of a reversal.
- The magnitude that the third day comes down into the white candle of the first day, indicates the strength of the reversal.
General Analysis and Investor Sentiment:
The market trend was on its way up. The stronger the uptrend, the more investor sentiment changes to fear of the end of the trend. The market gets overbought and the bulls are starting to take profits or sell off out of fear. The next day, the Evening Star day, the bears start to take short positions while the bulls are selling off, causing a small trading range. The third day is a large sell of day because the bulls get concerned and start jumping ship while the bears take control. If there is large volume during these days, it indicates that ownership has changed and the Bears now have control.
Thats it for the Evening Star Japanese Candlestick Pattern. Keep learning and mastering Forex with us, here at PipsAngels.com.
