What Is an Evening Star?
An evening star is a three-candle bearish reversal pattern used in candlestick charting to signal that a sustained uptrend may be ending and a downtrend may be starting. It typically appears at or near the top of an uptrend and combines a strong bullish candle, a small indecision candle (often a Doji or small body), and a strong bearish candle that erases much of the prior gains.
Why traders care
– It signals a potential trend reversal (bull → bear).
– When confirmed, it can provide a reasonably clear entry, stop, and target framework.
– It’s widely recognized, so it often attracts attention from many market participants (self‑fulfilling).
Key features (three candles)
1. First candle: long bullish (white/green) candle that extends the existing uptrend—shows strong buying pressure.
2. Second candle: small body (can be bullish, bearish, or a Doji), ideally gaps or opens above the first candle’s close and shows indecision or slowing momentum.
3. Third candle: long bearish (black/red) candle that opens at/near the second candle’s level and closes well into the body of the first candle—preferably below its midpoint—showing renewed selling and a likely trend change.
Open, High, Low, Close (OHLC) — how candlesticks are formed
– Open: first trade price in the period.
– High: highest price in the period.
– Low: lowest price in the period.
– Close: last trade price in the period.
A candlestick’s body spans the open and close; wicks (shadows) indicate high/low extremes. The relative positions and sizes of these components across several candles create patterns such as the evening star.
The Doji and its role
– Doji: a candle where open ≈ close, producing a tiny or no real body.
– As the middle candle of an evening star, a Doji represents market indecision after the bullish run. Its presence strengthens the signal because it shows buyers were unable to continue driving price higher.
Important factors when identifying an evening star
– Preceding uptrend: the pattern gains meaning only when it forms after a clear upward trend.
– Candle size: the first and third candles should be relatively large compared to recent candles—showing decisive momentum shifts.
– Depth of the third candle’s close: the stronger the bearish conviction (closing below the midpoint of the first candle), the more reliable the reversal signal.
– Volume: higher volume on the third candle (and sometimes on the first) supports the validity of the reversal.
– Timeframe: the pattern can appear on any timeframe (daily, hourly, weekly) but must be interpreted in the context of that timeframe’s trend. Higher‑timeframe signals (daily/weekly) are generally more durable.
Confirmation tools (use alongside the pattern)
– Volume: rising volume on the third candle supports real selling pressure.
– RSI / Stochastic: bearish divergence or an overbought reading turning down supports the reversal.
– MACD: a bearish cross or loss of upward momentum helps confirm.
– Trendlines / moving averages: break below a trendline or short-term MA after the pattern adds confidence.
– Support zones / Fibonacci levels: a close below nearby support or a key retracement level strengthens the signal.
Practical steps to identify and trade an Evening Star
Step 1 — Confirm trend context
– Verify the security is in a clear uptrend on the timeframe you trade (higher highs / higher lows).
– Prefer patterns at or near prior resistance or supply zones.
Step 2 — Identify the three-candle structure
– Candle 1: long bullish candle continuing the trend.
– Candle 2: small body or Doji—ideally gaps up or at least shows indecision.
– Candle 3: strong bearish candle that closes into the body (preferably below the midpoint) of Candle 1.
Step 3 — Check confirmation indicators
– Volume: increased on Candle 3.
– Momentum: RSI turning down from overbought or MACD weakening.
– Price structure: break of a short-term trendline, moving average, or close below the low of Candle 3.
Step 4 — Entry rules (sample approaches)
– Aggressive: enter short at the close of Candle 3 (if it closes strongly bearish and indicators agree).
– Conservative: wait for a break below the low of Candle 3 (or a close below that level) before entering.
– Alternative: wait one more candle to confirm a follow‑through bearish day.
Step 5 — Risk management (stops and sizing)
– Stop loss: above the high of Candle 2 (the small/Doji candle) or above the high of Candle 1 for more conservatism.
– Position size: size the trade so that risk (distance to stop × position size) equals a small % of portfolio (commonly 1–2%).
– Use hard stops and consider a secondary trailing stop as trade moves in your favor.
Step 6 — Profit targets and trade management
– Target 1: nearby support or prior swing low.
– Target 2: measured move—project roughly the height of the prior rise (distance from start of uptrend to the top) or use Fibonacci extension levels.
– Risk:Reward: aim for at least 1:1.5–1:3 depending on your strategy.
– Management: scale out partial profits and trail stop behind swing highs or moving averages.
Example (conceptual)
– Uptrend in place. Day 1: closes strong green to $50 (long bullish candle). Day 2: small Doji at $51 (indecision). Day 3: strong red candle that closes at $47 (below midpoint of Day 1). Confirmation: volume spikes and RSI falling. Entry: short on break below $46.50 (Day 3 low) or on Day 3 close; stop above $52 (recent high); target initial support at $42.
Limitations and pitfalls
– False signals: patterns can fail—market noise or continuation patterns may look similar.
– Context matters: pattern in isolation is weaker; use confirmation indicators.
– Timeframe mismatch: an evening star on a 5‑minute chart is not equivalent to a daily or weekly signal.
– Gaps: markets that don’t allow gaps (some forex pairs) may present the pattern differently.
– Overreliance: don’t base a trade solely on the pattern—use it as part of a broader plan.
Practical checklist before placing a trade
– Is there a clear preceding uptrend on your trading timeframe?
– Do the three candles match the evening star criteria? (sizes and positions)
– Does the third candle close into/through the first candle’s body (ideally below midpoint)?
– Is volume higher on the third candle?
– Do momentum indicators (RSI, MACD) and support/MA breaks agree?
– Have you defined stop loss, position size, and target(s)?
– Do you have a plan for trade management and exit if the pattern fails?
Backtesting and practice
– Backtest the pattern on the instruments and timeframe you trade to measure reliability.
– Paper trade or use a small real-size position to gain experience with pattern nuances and false signals.
Other bearish candlesticks to know
– Bearish engulfing: single-day pattern where a large bearish candle fully engulfs the prior bullish candle—often more immediate.
– Dark cloud cover: first candle bullish, second opens above then closes well into the first candle’s body—similar signal but different structure.
Choose patterns that suit your time horizon and temperament.
Sources and further reading
– Investopedia — “Evening Star” (primary explanation of the pattern and structure).
– Elearnmarkets — “5 Powerful Bearish Candlestick Patterns.”
– Stock‑Screener.org — “Doji Candlestick Pattern.”
– TheStreet — “What Are the Opening & Closing Prices in the Stock Market?”
– The Sovereign Investor — “Evening Star Pattern: What Does It Mean and How to Trade It Properly?”
Bottom line
The evening star is a classic bearish reversal pattern that combines a strong bullish candle, an indecision candle (often a Doji), and a strong bearish candle to signal a potential top. It’s most useful when confirmed by volume, momentum indicators, or breaks of support/trendlines. Use clear entry/stop/target rules, proper position sizing, and backtesting to incorporate it into a disciplined trading plan.