evening star

Evening Star Pattern: Indication, Meaning, And Examples

Are you a trader trying to study and understand various technical trade patterns? 

Well, it’s crucial in case you want to grow in the trading industry and do exceptionally well!

For today, let’s pick the Evening Star trade pattern and see what it indicates about the market and how you can draw trade ideas from there.

Without accounting for fees, the predicted outcome of risking $100 in an evening star pattern would enable traders to make $0.6 on average. 

So, let’s understand how the market works and the crucial points you need to know!

Let’s dive in!

What is an Evening Star Pattern?

The Evening Star pattern in a trade analysis technical chart is used to detect the reversing of trends. It is a bearish candlestick pattern that combines three elements: A small-bodied candle, a large white candlestick, and a red candle.

This pattern has an association with the uptrend of prices. It conveys that the uptrend is almost on the verge of ending. 

What does an Evening Star Pattern Mean?

The Evening Star pattern indicates that the prices will decline in the future. It is divided into three candle ticks, as discussed above, followed by three days. Let’s look at the three days in precise:

Evening Star pattern

Day 1: Large Bullish Candle

The first day is indicated by the large candle that signifies a continuous price rise. This is the time when bulls are in charge of the high prices.

Day 2: The small-bodied candle

The second day signifies a modest price increase. It is when bulls are in control, and the prices are pushed no further by them.

Day 3: The Red Candle

On the third day, the price opens up much below the previous day, and the closing price is somewhere near the middle of it. It indicates that the prices being pressed by bears often eliminate the gains seen on the first day.

Example of Evening Star Pattern

Below is an example of the evening star pattern.

Evening start pattern example

You can see three candles: the long, the small-bodied, and the red. 

  • The first candle depicts that the prices have gone higher, 
  • The second one shows a modest price increase, and lastly, 
  • The red candle takes the price to the midpoint of what it was on day one.

This is the intent of an evening star pattern. 

Generally, what a technician or analyst would do at this time would include shorting and selling the shares after predicting a decline in prices in the upcoming days.

Conclusion

The evening star pattern is not very common but quite rare! However, technical analysts and experts consider it the most reliable of all.

Trading with technical patterns includes correctly understanding and interpreting many other patterns besides what we’ve discussed above.

Contrary to the evening star pattern is the morning star pattern. Can you predict what must be the scenario in that pattern? 

If you want to get started, the first step is to Open a free Demat account here, for which you need to fill out your details here.

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