Evening Star Candlestick Pattern is a sign of strong reversal. It helps investors find potential entry points. So what are the characteristics and how to trade with Evening Star? Let’s find out details about Forex Trading through the article below.
What is the Evening Star Candlestick Pattern?
Evening Star Candlestick Pattern is also known by many people as Evening Star candlestick. This is a Japanese candlestick pattern with 3 candles, including a large bullish candle (first candle), a bullish or bearish candle with a small body (second candle), and a strong bearish candle (third candle). This structure is considered one of the tightest of all candlestick patterns.
The Evening Star pattern often appears at the end of an uptrend. It always appears like the peak of a wave. The main purpose is to provide a reversal signal from bullish to bearish. Therefore, when the Evening Star candlestick pattern appears, traders should take advantage of the Sell order to get ahead of the trend.
Outstanding features of Evening Star Candlestick Pattern
Evening star candlesticks often appear on the chart, so investors should know how to identify them so as not to miss trading opportunities. Below are some important characteristics of this candlestick pattern that traders need to understand:
- A candlestick pattern is a set of 3 candles with distinct colors and characteristics. Specifically as below:
- The first candle: This is a candle called strong increase, with a long body, showing that buying pressure is increasing strongly. The longer the candle body is, the more accurate the signal of the evening star candle is.
- The second candle: Is a candle with a small body (closing price nearly equivalent to the opening price) similar to a Doji candle or Spinning Stop candle. This candle does not matter whether it is green or red.
- The third candle: This candle is called a strong bearish candle, with a long body (at least 1/2 the length of the first candle’s body).
Outstanding features of Evening Star
- Evening star candlesticks often appear at the top of an uptrend or in a strong resistance zone, showing a bearish reversal signal.
In contrast to Evening Star, Bullish Engulfing is a pattern consisting of two opposing candles, often appearing in a downtrend. In particular, the next candle will be longer than the previous candle and cover the entire previous candle. Bullish Engulfing appears to show that the buyers are dominating the market.
See more: Analyze & forecast trend effective candlestick pattern
How to trade with Evening Star Candlestick Pattern
The Evening Star will begin to appear at the top of the uptrend as a signal of a bearish reversal. In particular, if this candlestick pattern forms GAP gaps between the first and second candles or between the second and third candles, this reversal signal is even more certain.
To trade with candlestick patterns, especially the Evening Star Candlestick Pattern is very simple, you just need to follow the steps below:
Identify market trends to trade Evening Star
First, to start trading, you need to determine the market trend as accurately as possible. Investors only look for transactions if the current trend is Uptrend and shows signs of weakness when failing to build the next peak higher than the previous peak.
To determine the exact market trend, you can analyze on larger time frames or use Trendline tools, and price channels,…
Determine the appearance point for the Evening Star Candlestick Pattern
Next, you need to find a suitable location for the evening star candlestick to start a Sell order. If you want to trade smoothly and quickly, you should find the location of the evening star candlestick at the top of the uptrend. You should not make a trade if the candlestick pattern appears at the bottom of a downtrend. Because this can affect trading performance significantly.
Use evening star candles and other tools for analysis
Evening Star provides clear and accurate reversal signals, but investors should not rush to make trading decisions based solely on this signal. Instead, traders should combine the use of other tools such as MACD, RSI, Ichimoku, Bollinger Band,… or wait for confirmation of a bearish reversal at the position of the red candles that appear after the evening star candle. then transactions must be made to ensure maximum safety.
Find the right entry point to complete the trade with Evening Star
After completing all the above steps and making sure all signals reverse and decrease. At this point, please execute the Sell order immediately. Below are the steps to help you quickly enter a Sell order:
- Entry point: Choose the entry point at the closing price of the red candle. This candle often appears after the Evening Star.
- Stop loss: You should choose the part above the 2nd candle’s wick. This part will appear several pips depending on whether the trading strategy is long or short.
- Take profit: You should take profit according to the R: R ratio, specifically 1:1 to 1:3.
For example, the GBP/USD currency pair is currently on the 1D timeframe trending up.
If the evening star candlestick appears at the top of an uptrend, it means that the buyers are out of breath. The MACD line is crossed by the signal line from top to bottom. The PSAR dot moves from bottom to top at the same time the RSI falls into the overbought zone. At this point, you should place a Sell order.
Below are detailed instructions to help you enter Sell orders effectively that you can refer to:
- Entry point: At the closing price of the first candle. At the price of 1.36500 after the evening star candlestick.
- Stop loss: You should place your stop loss above the second highest point. Position 100 pips for 1.37500 (choose a daily time frame and trade medium term).
- Take profit: Take profit at the specific R: R ratio of 1:2 at 1.34500.
Find the right entry point
It can be seen that this trading method has many similarities with the descending triangle pattern. This shows that in the market, the sellers are more dominant than the buyers.
See more: Optimize trading with IC Markets Exchange
Notes when trading Evening Star Candlestick Pattern
Evening Star helps investors find effective reversal trading orders. However, when placing a Sell order, you do not rely solely on it. Because in reality there are still many wrong signals. Therefore, when trading, traders need to firmly grasp the following rules:
- You should not only use signals from Evening Star when making transactions, but you need to combine them with tools such as indicators, and price models,… to confirm the reversal signal most accurately.
- Confirmation of the trading volume is required before the transaction can be performed. Trading volume will decrease on the first candle and increase on the third candle.
- Before the Evening Star pattern appears, the market trend must be a clear uptrend. You absolutely should not make transactions when the market is in Sideway state.
- Follow the strategy as well as the principles of cutting losses and taking profits. This helps traders protect their accounts from going to zero.
- To make all transactions safe. You should place an order when a red candle appears after the evening star candle.
In the above article, Forex Trading has shared with you all the information about the Evening Star Candlestick Pattern. Hopefully, the above information can help you understand what an evening star candle is. How to trade? when encountering this pattern on the chart is most effective.
FAQs
Here are some related questions about Evening Star in Forex trading that you can refer to:
What benefits does Evening Star bring to Traders?
Evening Star is an important candlestick pattern that helps traders understand the psychological developments of buyers and sellers. At the same time, it also helps investors find the correct entry and exit points.
When does the evening star candle appear?
Evening Star often appears in uptrends of the market. This is a signal that the price is about to reverse from increase to decrease.
What should traders do when the evening star candle appears?
When the Evening Star appears, this is the right time for you to enter a Sell order to stay ahead of the market trend. At the same time, this is also an opportunity to help you find potential reversal trading orders.
