What is an Evening Star Pattern?
The Evening Star is a highly reliable three-candle bearish reversal pattern that forms at the peak of an uptrendUptrendA market direction characterized by a sequence of higher highs and higher lows.Read full glossary entry →. It signals a shift in momentum from buyers to sellers and represents the transition from a bullish phase to a new bearish phase.
Pattern Structure
A valid Evening Star pattern consists of three consecutive candlesticks:
- Candle 1 (Bullish): A large green (bullish) candle, representing the continuation of the prevailing uptrendUptrendA market direction characterized by a sequence of higher highs and higher lows.Read full glossary entry →.
- Candle 2 (The Star): A small-bodied candle (red or green, Doji, or spinning top) that:
- Gaps up above the close of Candle 1.
- Represents a state of equilibrium and indecision.
- Candle 3 (Bearish): A large red (bearish) candle that:
- Opens near or below the close of Candle 2.
- Closes deep inside the body of Candle 1 (typically below the 50% midpoint).
Psychology Behind the Pattern
The three days of an Evening Star tell a clear psychological story:
- Day 1 (Greed): Buyers are in complete control, pushing the price up aggressively.
- Day 2 (Indecision): The session opens with a gapGapAn area on a chart where no trading activity took place, visible as an empty space between two consecutive candles.Read full glossary entry → up, showing initial buying pressure. However, prices fail to climb further, and the session closes with a tiny body. This indicates that buyers are exhausted and sellers have begun stepping in.
- Day 3 (Panic & Reversal): Sellers launch a major counter-offensive, driving prices down rapidly. The strong bearish close convinces long-buyers to exit and attracts short sellers, completing the trendTrendThe general direction in which a security or market is moving over time.Read full glossary entry → reversal.
Identification Rules
- Confirm the Gaps: Look for a gapGapAn area on a chart where no trading activity took place, visible as an empty space between two consecutive candles.Read full glossary entry → between the real bodies of Candle 1 and Candle 2, and another gap between the bodies of Candle 2 and Candle 3.
- Midpoint Close: Check that Candle 3 closes comfortably below the 50% midpoint of Candle 1's body.
- VolumeVolumeThe total number of shares, contracts, or units of a security traded during a specified time period.Read full glossary entry → Signature: Look for high volumeVolumeThe total number of shares, contracts, or units of a security traded during a specified time period.Read full glossary entry → on Candle 3, which indicates institutional backing of the reversal.
Trading Setup
- Entry: Enter a short position on the open of the candle immediately following the completed Evening Star, or wait for a minor pullbackPullbackA temporary price pause or moderate retracement against the primary trend direction.Read full glossary entry → to the midpoint of the third candle.
- Stop-Loss: Place the stop-loss orderStop-Loss OrderAn order placed with a broker to sell an asset when it reaches a specific price, designed to limit a trader's loss on a position.Read full glossary entry → just above the highest high of the pattern (usually the high of the middle star candle).
- Target: Target the next key supportSupportA price level where buying pressure is strong enough to prevent the price from falling further. It represents a "floor" on the chart.Read full glossary entry → level, maintaining a minimum 1:2 risk-to-reward ratioRisk-to-Reward RatioA measure used to compare the potential profit of a trade against its potential loss. A ratio of 1:2 means the trader is risking $1 to potentially mak...Read full glossary entry →.
Common Mistakes
[!WARNING]
- Trading Small Stars: Do not trade an Evening Star if the third candle is small and fails to penetrate the body of the first candle. This shows weak seller follow-through.
- Sideways Markets: Avoid trading the pattern in sideways consolidation zones. It requires a prior uptrend to be a valid reversal indicator.