Evening Star

What Is an Evening Star?

An evening star is a stock-price chart pattern utilized by technical analysts to identify when a trend is going to reverse. It is a bearish candlestick pattern comprising of three candles: a large white candlestick, a small-bodied candle, and a red candle.

Evening star patterns are associated with the highest point of a price uptrend, implying that the uptrend is approaching its end. Something contrary to the evening star is the morning star pattern, which is seen as a bullish indicator.

How an Evening Star Works

A candlestick pattern is a method of condensely introducing certain data about a stock. In particular, it addresses the open, high, low, and close price for the stock throughout a given time span.

Every candlestick comprises of a candle and two wicks. The length of the candle is a function of the range between the highest and lowest price during that trading day. A long candle demonstrates a large change in price, while a short candle shows a small change in price. All in all, long candlestick bodies are indicative of serious buying or selling pressure, contingent upon the bearing of the trend, while short candlesticks are indicative of little price movement.

The evening star pattern is considered an extremely strong indicator of future price declines. Its pattern forms over a period of three days:

1. The main day comprises of a large white candle implying a proceeded with rise in prices.
2. The subsequent day comprises of a smaller candle that shows a more unassuming increase in price.
3. The third day shows a large red candle that opens at a price below the previous day and afterward closes close to the middle of the primary day.

Special Considerations

The evening star pattern is considered a dependable indicator that a descending trend has started. Be that as it may, it tends to be hard to recognize in the midst of the noise of stock-price data. To assist with recognizing it dependably, traders frequently use price oscillators and trendlines to affirm whether an evening star pattern has as a matter of fact occurred.

It's fitting to counsel different technical indicators to predict price movements, rather than depending exclusively on the signs given by one.

Regardless of its ubiquity among traders, the evening star pattern isn't the just bearish indicator. Other bearish candlestick patterns incorporate the bearish harami, the dark cloud cover, the shooting star, and the bearish engulfing. Various traders will have their own inclinations with respect to what patterns to look for while seeking to recognize trend changes.

Illustration of an Evening Star Pattern

The following chart gives an illustration of the evening star pattern:

As may be obvious, the three days portrayed start with a long white candle that shows prices have risen from huge buying pressure. The subsequent day likewise shows a rise in prices, however the degree of the increase is unassuming compared to the previous day. Ultimately, the third day shows a long red candle in which selling pressure has forced the price to around the midpoint of the principal day.

These are the indications that an evening star pattern has occurred. Technical analysts trading this security would think about selling or shorting the security in anticipation of a forthcoming decline.

Highlights

• An evening star is a candlestick pattern utilized by technical analysts to predict future price inversions to the downside.
• Despite the fact that it is rare, the evening star pattern is considered by traders to be a solid technical indicator.
• The evening star is something contrary to the morning star pattern. The two are bearish and bullish indicators, separately.