Evening Star Candlestick Patterns Explained: What They Are & How To Trade Them

Playing Markets

Evening star patterns are one of the most well-known candlestick patterns because they are easily identified and give a clear signal.

Since candlesticks are the basic building block of most technical analysis, the ability to recognize different candlestick patterns is a crucial trading skill.

First though, let’s start with a definition.

In this Guide to Evening Star Patterns, we’ll explain:

What They Mean
How To Recognize Them
Where They Fit
How To Trade Them
Similar Candlestick Patterns

What Is an Evening Star Pattern?

An evening star pattern is a 3-candlestick formation that may signal a bearish reversal. It may appear during an uptrend and is made up of a large bullish candle followed by a short candle and a large bearish candle.

It is a subtype of the star pattern and the opposite of the morning star. It is also very similar to the bearish abandoned baby and evening doji star patterns. For all of these patterns, the middle candle is essentially the apex of a potential reversal.

Of course, no candlestick pattern guarantees a particular outcome. Instead, they offer clues as to what is going on in the market.

So the question is, what does a star really tell you?

What Evening Star Patterns Mean

Like many candlestick patterns, the name itself doesn’t reveal much.

And unlike some, English speakers do not use the Japanese name for it. The “star” part probably comes from how the pattern looks. The small candle is reminiscent of a twinkling star (or something like that).

In trading terms:

During the first period, price continued the pre-existing uptrend.
During the second period, neither side was able to gain much ground.
During the third period, price moved back down, threatening the uptrend.

This sets the stage for bearish reversal, as it appears the uptrend may be nearing exhaustion.

How To Recognize Evening Star Candlestick Patterns

Traders are attracted to patterns partly because they are easy to spot.

However, it’s also easy to see things on the charts that aren’t truly there (or anticipate events that never come to fruition). That’s one of the reasons why waiting for confirmation is so important.

Technically, an evening star pattern must:

Appear during an uptrend
Begin with a bullish long candle
Have a short candle as the second candle
End with a bearish long candle of similar size to the first candle
Contain no gaps

In practicality though, many traders will make various exceptions.

The first and third candles can be different lengths, as long as they are both long line candles and/or test important price levels.
There can be more than one short candle between the first and final candlestick.
There can be one or more gaps, as long as the overall structure remains the same.

Depending on who you ask, any of these standards may be more or less important. Moreover, some of these variations may be more properly classified as other reversal candlestick patterns, such as the bearish abandoned baby or evening doji star.

Remember, identifying the reversal itself is more important than labeling the formation. That’s not to say these standards are completely unimportant (as we’ll touch on shortly). It’s just to say that the implications are more important than the criteria.

In other words, you need to put it into context.

Where Evening Stars Fit in the Chart Narrative

The markets are often characterized as a battle between the bulls and the bears.

Evening star patterns show that the bulls attempted to press their advantage on candle one, stalled on candle two, and finally surrendered momentum to the bears on candle three.

On the chart, it looks like a U-turn.

It might happen like this on a daily time frame:

On the first day, bullish momentum continued to carry price higher. Anticipating more of the same, even more buyers piled into the market on the second day. To their surprise, the sellers showed up in force as well. Intense back and forth action ensued. Ultimately, neither side made much headway. By the third day, the bulls lost their appetite for the fight, allowing price to fall back down near the first day’s open.

From here, the impetus is on the sellers to make the trend change stick.

In the short-term, it amounts to a bearish counterpunch.

The question traders need to ask themselves is, “Will the bulls be able to squeeze any more juice out of the trend or has it run dry for now?”

To answer that question, you’ll need more than just an understanding of Japanese candlesticks and candlestick patterns. You’ll want to analyze both within the context of greater chart patterns as well as trend and price levels. You’ll also want to make use of your own chart markup and indicators.

Analyze the history of your preferred asset(s) with respect to star patterns and apply it to your own trading style.

Now, you can test (and/or stretch) the criteria we mentioned above to find the most tradeable opportunities. For example, you may find that evening stars that feature a hanging man second candle play out more reliably than those with a shooting star second candle. Or, you may find the opposite.

Here is where the story in the charts begins to come into focus.

This is what we call technical analysis.

How To Trade Evening Star Patterns

Bearish reversal points are great places to exit longs or enter shorts.

Evening star patterns serve as easy-to-spot signs of potential bearish reversal—and may even lead to longer-term tops when found on higher time frames.

Generally, you can put more weight into multi-stick patterns than single candles. They give you more information over a longer amount of time. Still, it is considered unwise to trade based on candlestick patterns alone. They rarely have extremely high hit rates by themselves.

You need additional points of confluence to shift the probabilities in your favor.

Some of the more important ones include:•

Volume – Reversals are often accompanied by elevated trading volume. For evening stars, be on the lookout for it on the second and (especially) the third candles.
Price Formations – Evening stars that form near important resistance levels are usually more likely to lead to sustained reversals. They may also reinforce the strength of such levels.
Oscillator Shift – Oscillating indicators like the RSI or stochastics are commonly used to identify reversals by analyzing slope, percentile, and/or divergence.

The fewer such factors corroborating the reversal, the less confident you can be about it.

It would be difficult to form a comprehensive trading strategy around star patterns (whether bullish or bearish). There simply isn’t enough there to develop a strong edge. Even with a great understanding of trading math, orders, psychology, risk management, options, and automation, you’d still have a hard time.

You’re much better off building your strategy around other tools then using reversal patterns as an additional point of confirmation.

Patterns like the evening star are much better idea givers than trade makers.

Other Candlestick Pattern Types

The evening star is but one of many candlestick patterns.

You’d be wise to get familiar with all of the other ones too.

Sure, there are quite a few of them. But don’t let that intimidate you.

It’s unnecessary to memorize all the names and criteria for every pattern. What’s more important is to learn the principles of price action and technical analysis.

In fact, you’re free to forget all of the names and specifications as long as you can look at a group of candlesticks and understand what they are trying to tell you.

Takeaways

To review:

Evening stars are a type of candlestick pattern that signals a potential bearish reversal. While not a guarantee, their appearance may indicate that market conditions are changing. Thus, they can help you find winning trades.

Of course, there are other candlestick patterns that you should learn about. And even so, the ability to recognize patterns is not enough to trade successfully on its own.

Nonetheless, you’ve now added one more tool to your toolkit.

Have questions or more information to add? Contribute to the conversation in the comments below! Or, if you know someone who could benefit from this post, share it with them. You can also check out our Candlestick Patterns Guide to improve your candlestick analysis skills.