You are a genuine forex trader, so do you know about the Evening Star candlestick pattern? Or its impact on the financial market? Join Forex Trading to find out why the candle is considered a potential reversal signal. At the same time, explore in more detail how to effectively trade with the candlestick pattern in the following article!
Answer: What is the Evening Star model in Forex?
Morning Star is a candlestick pattern that appears at the end of a downtrend and signals a bullish reversal. So what candlestick pattern is Evening Star and what signal does it give in Forex?
Detailed definition of the Evening Star chart
Evening Star is also known as this candlestick pattern in the UK. This candlestick chart appears in technical analysis and is considered a potential reversal signal from an uptrend to a downtrend.
In particular, the candlestick pattern will appear when the opening price is close to the highest peak of the trading session. It then rises to the highest level and will eventually end the trading session at a much lower price. Especially when you look at this Forex model, you will see that it is shaped like an upside-down candle, with a small body and a long shadow at the top.
Thereby, showing the competition between buyers and sellers. At the same time, it signals a potential change in price trends for traders. If this Evening Star candlestick chart appears after a strong uptrend, it may reflect buyer weakness and the possibility of a future correction or bearish reversal.
See more: Analyze & forecast trend effective candlestick pattern
Instructions on how to identify the correct evening star candlestick pattern
Unlike how to identify triple bottom pattern or other Forex patterns. To identify the correct candlestick pattern, you need to identify three main candles. At the same time, it requires traders to have an understanding of price action and where patterns appear within the existing trend. Specifically:
- Set up an existing uptrend market, showing higher highs and lower lows.
- The large bullish candle is the result of applying large buys and continuing the existing uptrend. Right now, traders should only look for long trades because there is no evidence of a price reversal yet.
- The second candle is a bearish candle that will represent the first sign of an uptrend. Usually, this candle has a higher gap because it makes the high higher.
- The first real sign of selling pressure will be revealed in a large bearish candle. In non-forex markets, this candle breaks out of the candle’s close and signals the start of a new downtrend.
- After a successful reversal, traders must observe lower prices and higher prices. At the same time, the risk of a failed move must always be managed through the use of stops.
Analyze the reliability of the Evening Star candlestick pattern
So is the Evening Star model reliable for traders? In technical analysis, the candlesticks are used to predict reversals in bullish trends. This pattern will include 3 candles: A positive candle (Bullish) and, a small or large body candle with a negative candle (Bearish). In particular, the candlestick often appears after an uptrend and has the opposite meaning of the morning star candlestick.
Although the Evening Star candlestick pattern is considered a potential reversal signal. However, its reliability is not only based on the shape of the model but also depends on the context and other factors in the market. If fails to reverse, the price will continue to increase, affecting investment. Therefore, traders should always combine stop-loss orders and manage risks appropriately.
How to effectively use Evening Star with other technical indicators
According to recommendations of forex experts, traders should use Evening Star in combination with other technical indicators to increase trading efficiency. Let’s take a look at some trading strategies that can be used when identifying yesterday’s star candlestick pattern in the following information.
Combine Evening Star with RSI indicator
Firstly, it is the combination of the candlestick with the RSI index. This is a popular indicator that helps traders recognize whether the current trend is reversing or not. Technically, RSI also indicates overbought/oversold conditions and divergence. Therefore, combining them will help investors trade more reliably.
Especially when analyzing the Evening Star candlestick, you should only focus on the overbought condition if the evening star pattern appears at the end of an uptrend. At that time, if the RSI is in the range of 70 – 80, the trend is about to reverse. As the example below shows, the RSI is in the overbought zone. In this case, the trader can trade with the third candle. Or wait for the next candlestick to complete before trading.
MACD indicator with Forex evening star candlestick pattern
Or you can use the Evening Star model with the MACD indicator. MACD is another popular indicator used by many traders in technical analysis such as descending triangle pattern, and inverted hammer candlestick charts… The purpose is to help investors predict the future direction of the market. trend.
If using MACD for additional confirmation, traders need to look for histogram bars below the 0 line. Or there is a crossover between the two MACD moving averages. After the candlestick forms and shows a bearish signal, traders can trade safely. Furthermore, you can also set a stop loss at the highest level of the recent price movement. And set take profit at the lowest level of the previous price fluctuation.
Evening star candlestick chart with volume indicator
Additionally, you can apply the Evening Star candlestick chart with a volume indicator. This is a handy trading tool that helps track high activity in the market. Thereby helping traders see signs when players place large volume orders. From there, confirm the trend reversal more accurately.
When the candlestick pattern appears, it means that the volume in the market must be high or above average. Thanks to this, we know that the selling pressure and the uptrend may soon end. As in the example below, you can see trading volume increasing slightly above average. At the same time, recognize the trend that is about to change.
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Detailed trading instructions with the Evening Star candlestick pattern for newbies
Make sure your transactions will achieve extremely effective profit margins and risk management with just 3 steps with the Evening Star candlestick model :
- Step 1: Determine the trend and location of the candlestick.
Find 3 consecutive candles, in which the first candle is a large positive candle. The second candle is short or positive/the bright core can penetrate the first candle’s body. The last candle is a large negative candle, which can penetrate the body of the second candle. Continue to validate the model by examining additional factors. Including trading volume, confirmation from indicators…
- Step 2: Combine with indicators to confirm the reversal signal with Evening Star
– If there is a divergence between RSI and the price line, RSI will fall into the overbought/oversold zone.
– If MACD crosses the signal line upwards, the trend is up and vice versa.
– The candle appears to touch the upper and lower thresholds of the Bollinger Bands.
- Step 3: Place a sell order
Once the Evening Star pattern is confirmed, you can place a short Sell order or a Sell order when the price exceeds the third negative candlestick. The profit target will be determined using the next support levels on the chart or other analysis tools.
At the same time, always manage risk by setting Stop Loss levels to limit losses. Or apply profit-taking techniques to lock in profits when prices go down.
Summary:
Hopefully, the information in the above article will help investors better understand the Evening Star candle. Once you understand the theoretical foundation of the candlestick pattern, your Forex trading will become easier. In addition, don’t forget to improve your forex knowledge by following Forex Trading‘s latest articles.
FAQs:
Does the evening star candlestick pattern have any disadvantages?
Sometimes, it shows fake reversals or failed signals. That affects investors’ predictions.
What technical analysis tools should you use the candlestick with?
To optimize the function of the candle, traders should combine it with technical analysis indicators. For example: MACD, RSI indicator, volume indicator…
What should you keep in mind when using Evening Star candlesticks in trading?
Traders need to follow a strict strategy. Know how to fully integrate with other technical analysis tools. At the same time, do not trade when the market is Sideway. Make sure the trend before the candlestick pattern appears is bullish…
