Evening Star Candlestick Pattern Physical Description:

The Evening Star is a three candle top reversal pattern. This bearish chart formation occurs during a price uptrend and the first candle in the series is a long white candle. The second candle gaps higher and forms what is known as a spinning top type of candlestick. The third candle gaps down away from the the second isolating it above both the first and second candles and forming the “star” of the pattern.

Evening Star Candlestick Pattern Criteria:

• Appears only in the context of an uptrend

• 1st candle is a long white candle

• 2nd candle has the following characteristics:
• Has a small real body (spinning top)
• Can be either black or white
• Real body is isolated higher than the previous day’s close

• 3rd candle has the following characteristics:
• Long black candle
• Gaps lower away from the 2nd candle at the open
• Moves deep into the 1st candle’s real body

Evening Star Candlestick Pattern Market Psychology:

The Morning Star Pattern is a powerful bearish “self confirming” type of formation. In order for this chart pattern to form, buyers will have had to have been in control indicated by an established uptrend.

The first candle in this formation is a long white bullish candle indicating a continuation of the previous uptrend.

On day two, price gaps higher at the open. The buyers rejoice as they continue to push price higher and do so with strength as indicated by the gap up at the opening. However, by the close of the second candle a small real body forms in the form of a spinning top or a doji. This small real body indicates indecision in the battle between the buyers and the sellers. At this point, seasoned traders will notice the potential for a Morning Star Pattern and note that the previous uptrend may be starting to stall.

At the open on the next day, price gaps down below the second candle leaving it isolated above both the first and second day’s candles. This indicates that the sellers have now overwhelmed the strength of the buyers. With the close of the third day, a large black candlestick confirms that the previous uptrend has been reversed and the potential for a new trend to begin.

Evening Star Candlestick Pattern Trading Implications:

This strong bearish reversal candlestick pattern should be used by investors or traders to help aid in the decision to either get into or out of stock or option positions. Combined with other forms of Technical Analysis Indicators, the Evening Star Pattern is a powerful tool for making trading decisions.

Factors that Increase The Strength Of a Evening Star Candlestick Pattern:

• The longer the first candle the more significant the signal

• The further the third candle penetrates into the first candle the more powerful the signal

• Light volume during the first candle indicates a weakening trend

• Heavy volume on the third day shows conviction of the reversal

• When pattern forms near previous significant levels of resistance