What Is an Evening Star Pattern?

What Is an Evening Star Candle?

The Evening Star pattern is a reversal candlestick pattern that signals the end of an uptrend and the beginning of a downtrend. The Evening Star pattern consists of three candlesticks: a large bullish candle indicating growth, a Doji candle pattern reflecting uncertainty, and a large bearish candle closing below the middle of the first candle. An important sign is the presence of “gaps” between the candle bodies, which strengthens the reversal signal.

The appearance of the “evening star” warns of a change in the market mood from bullish to bearish. In volatile markets, such as cryptocurrencies, this pattern is especially relevant, but for reliability it should be used in combination with other indicators: support and resistance levels, trading volumes or oscillators.

Characteristics of the Evening Star Candlestick and How to Identify It?

The Evening Star candlestick pattern is a reversal pattern consisting of three candlesticks that signals a possible change from an uptrend to a downtrend. The main characteristics of this pattern are as follows:

1. The first candle is a large bullish candle, indicating the strength of the uptrend.
2. The second candle is a small candle (doji or with a small body), which reflects the uncertainty in the market. It often has a small gap with the first candle, indicating a slowdown in buying activity.
3. The third candle is a large bearish candle that closes below the middle of the first candle, which confirms the beginning of the downtrend. Identification of the Evening Star pattern is possible due to the search for this combination at the peak of the uptrend. The appearance of a second candle that indicates uncertainty and a subsequent bearish candle that closes below the previous candle serves as a strong reversal signal.

An Example of the Evening Star Candlestick Pattern

The chart starts with a series of rising green candles, indicating an uptrend. This is followed by a three-candle Evening Star pattern: a first large green candle, a second smaller candle (red or green) that is partially above the first, and a third large red candle that closes below the middle of the first green candle. This is followed by a downtrend with alternating red and green candles, where the reds dominate, confirming the market reversal. Сandlestick chart visualizes the classic pattern analysis used by traders to predict trend changes based on candlestick formation.

How to Trade an Evening Star Pattern ?

Let’s look at how to trade the Evening Star pattern, taking into account resistance levels and other candlestick formations.

Trading with Resistance Levels

This method consists of combining the Evening Star pattern with resistance levels. The key is to identify the pattern near a resistance level that has been tested before. This approach increases the probability that a reversal will actually occur. Traders should wait for pattern confirmation and then place a sell order immediately after the third candle of the pattern closes. Stop-Loss is usually placed above resistance or above the maximum point of the pattern’s second candle.

Trading the Evening Star with Other Candlestick Formations

This method involves using the Evening Star pattern in combination with other candlestick formations, such as the Acquisition or the Hammer. The combination of patterns increases the validity of the signal. For example, if a bearish engulfing pattern appears after the Evening Star formation, it strengthens the sell signal. Traders can place a sell order after the second pattern is confirmed and set a stop loss above the last formation to minimize risk.

Trading the Evening Star with Technical Indicators

Using technical indicators in conjunction with the Evening Star pattern can help determine the best entry and exit points. Popular indicators include moving averages, RSI (Relative Strength Index) and MACD (Moving Average Convergence/Divergence). For example, if the RSI shows overbought at the time of the Evening Star formation, this can serve as additional confirmation to sell. Cryptocurrency trading begins after the formation of the pattern and signals from indicators. Stop-Loss is set above the last candle of the pattern or at the level suggested by the technical indicator.

Strategies to Trade the Evening Star Candlestick Pattern

The Evening Star chart pattern becomes more effective in trading when combined with proven strategies and technical tools. Here are six key approaches to successfully trading this reversal pattern.

• Pullbacks On Naked Charts

Trading the Evening Star without indicators – focusing only on price movement – allows you to find key pullback zones. After the pattern is formed, the price often rolls back, which provides an excellent opportunity to enter the trade. Using a clean chart simplifies analysis and helps avoid unnecessary complexity.

• Resistance Levels

The Evening Star candlestick pattern becomes a particularly strong signal if it forms near a resistance level. By finding strong areas where price has previously reversed, traders can use this pattern as confirmation of a reversal and enter the trade with more confidence.

• Moving Averages

The combination of the Evening Star and moving averages helps to assess the overall trend of the market. If the pattern forms below or crosses key moving averages (e.g. 50 or 200 periods), it confirms a reversal signal and indicates a possible decline in the cryptocurrency prices.

• RSI

The Relative Strength Indicator (RSI) can confirm the Evening Star signal if a divergence is observed. When the price shows a new high and the RSI does not (bearish divergence), it indicates a weakening trend. The appearance of the pattern at this time strengthens the sell signal.

• Fibonacci

Fibonacci retracement levels are a powerful tool for confirming a reversal. When the Evening Star forms at the 61.8% or 78.6% retracement levels, it adds extra confidence to the signal. These levels can be used both to enter and exit a trade.

• Pivot Points

Pivot points are pre-calculated levels that indicate possible reversal zones. If the Evening Star forms near a key pivot point, it serves as a strong signal to enter the market on a trend reversal.

Day trading requires instant decisions, and patterns such as the Evening Star help traders react quickly to trend reversals.

Pros and Cons of Using Evening Star Pattern

The Evening Star trading pattern is a reliable reversal signal, but it has its pros and cons, which are important to consider when trading.

Evening Star Advantages

1. Strong reversal signal: The Evening star reversal pattern is one of the most reliable bearish reversal signals. Its appearance often indicates the end of an uptrend and the beginning of a downtrend.
2. Visual simplicity: The Evening Star is easy to recognize on charts, which makes it accessible even to novice traders. The pattern consists of only three candlesticks, making it easy to identify.
3. Compatibility with other instruments: The pattern works well in combination with resistance levels, technical indicators such as RSI, and Fibonacci levels, allowing traders to get more accurate signals.
4. Confirmation of trend weakness: When the pattern appears after a strong uptrend, it signals a slowing or exhaustion of the bullish trend, giving traders the opportunity to prepare in advance for a reversal.

Evening Star Disadvantages

1. Context Dependent: The Evening Star pattern candlestick is only effective in certain conditions. If it forms in the middle of a trend or without a clear resistance level, the signal may be false. Requires consideration of the overall market situation for accuracy.
2. Need for confirmation: Although the pattern itself is a strong signal, traders are advised to use additional indicators or strategies (levels, moving averages) to confirm the reversal. Without this, the Evening Star may not be reliable enough.
3. Signal lag: Since the pattern is formed on three candlesticks, the signal may appear after the reversal has started, which can reduce the potential profit for aggressive traders who try to enter the market at the earliest stages of the reversal.
4. Inability to predict the depth of a reversal: The Evening Star only indicates the beginning of a reversal, but does not guarantee its duration or strength. Price can only pullback short-term, making it difficult to manage trades.

Evening Star vs. Morning Star Patterns

Morning and evening star candlestick are opposite candlestick patterns that indicate a trend reversal.

• Evening Star: A bearish evening star pattern that signals the end of an uptrend. It consists of a bullish candle, a small candle (star) and a bearish candle confirming the reversal.
• Morning Star Pattern: A bullish reversal pattern that signals the end of a downtrend. Includes a bearish candle, a star and a bullish candle confirming the start of an upward trend.

Morning star and evening star are used to predict reversals, but in different market conditions.

Evening Star Candlestick vs Evening Star Doji Candlestick

The Evening Star and Evening doji star pattern signal a bearish reversal, but differ in the shape of the middle candle.

• The Evening Star consists of three candles – a bullish candle, a small candle (star), which can be of any shape, and a bearish candle. The middle candle indicates a slowdown in the uptrend.
• An evening doji star pattern is a special type of “evening star” where the second candle is a doji, indicating uncertainty and a stronger weakening of the trend. The Evening star doji pattern is characterized by a very small body and long shadows, which strengthens the reversal signal.

Evening Star Pattern vs. Other Trend Reversal Patterns

When analyzing trend reversals, it’s important to compare the Evening Star pattern with other commonly used formations to understand their distinct signals and applications.

• Evening Star vs. Head and Shoulders: The Evening Star is a candlestick pattern, while Head and Shoulders is a chart pattern signaling a trend reversal.
• Evening Star vs. Bearish Harami: The Evening Star consists of three candles and signals a strong reversal, whereas the Bearish Harami is a two-candle pattern with a weaker reversal signal.
• Evening Star vs. Triple Top: The Triple Top indicates a slower trend reversal, while the candlestick pattern evening star points to a sharper, more immediate trend change.

Conclusion

The evening star signals a change of mood among market participants, where buyers lose the initiative, giving way to sellers. Crypto assets often demonstrate high volatility, so using the Evening Star pattern helps to timely recognize trend reversals and make informed decisions.