The Evening Star Pattern Warns Traders for Upcoming Bearish Reversal

3 min read
Nenad Kerkez

Nenad Kerkez

Head of Trading

Did you ever hear of the “Evening Star” pattern before and wonder what it has to do with trading? Then you are at the right spot! The Evening Star is in fact a candlestick pattern which indicates bearish reversals. This article will discuss how traders can apply this particular candlestick pattern to take better trading decisions.

What is the Value of the Evening Star?

The name “EVENING STAR” refers to the end of the day or end of a peak, which indicates a bearish reversal signal. This candlestick pattern is composed of three candles:

  1.     Bull Candle (any type)
  2.     Shooting Star or a doji having long upper wick
  3.     Long Bearish candle having healthy body with no or very small lower wick

     Figure 2: Evening Star Pattern

How can you trade Evening Stars?

Here is the step-by-step process:

  1. Find the Evening Star pattern on the chart.
  2. Draw the Fibonacci Tool from the top of the middle candle to the low of the bearish candle. If price extends its bearish continuation, the Fib can also be drawn to the low of the entire bearish move before the first correction takes place (Fig-3).
  3. Locate the 50%, 55% and 61.8% Fibs and 78.6% Fib. All are reliable entry points but the most beneficial and less risky option is the 78.6% Fib level which also enhances reward and minimize losses.
  4. Now take a look at the previous move on lower/shorter time frames (1Hr/4Hr). There you should see that the evening star pattern  appears due to a wave 1 and 2 pattern.
  5. As an additional step, check out any trend line pattern on the previous moves as well.
  6. There are two types of entry points in trading this candle pattern. One is the 55% – 78.6% Fib level and the other is the break of the low of bearish candle of the pattern which may target the wave 3 (which is the longest wave).
  7. Stop Loss should be placed at the top of the middle candle.
  8. The take profit exit point should be the 3rd wave.
  9. Last but not least, “believe in the system”. Without confidence, nothing will work.

     Figure 3: Evening Star Pattern

 

 

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