• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Your Finance Book

Income Tax | Investing | Stock Market

  • Stocks
    • 10 reasons why share prices decline in the stock market
    • What to look for in growth investing strategy for better return
    • 10 things you must understand before buying stocks
    • Speculating Vs Investing Vs Saving
    • A beginner’s guide to understand stock’s value – Explained with examples
    • Mutual Fund Basics
  • GST
    • GST registration in India – all you need to know
    • Tax invoice in GST-A complete beginner’s guide for taxpayers
    • Input tax credit in GST – A beginners guide to claim ITC
    • What is inter-state supply of goods and/or services under GST
    • What is intra-state supply of goods and/or services under GST
  • Income tax
  • Tax Rates
  • ITR Due dates
  • About Us
  • Privacy Policy
  • Disclaimer
  • Terms of Use and Policies
  • Contact Us
Home / Finance / Evening Star Candlestick Pattern Explained

Evening Star Candlestick Pattern Explained

Last updated on October 8, 2023 by CA Bigyan Kumar Mishra

Share
Share on Facebook
Pin
Pin this
Share
Share this
Share
Share on LinkedIn

Candlestick patterns are used by technical analysts to predict future price reversals to the up or down side. One of such candlestick patterns which signal the end of an uptrend is “Evening Star Candlestick Pattern”.

Evening star candlestick pattern is a type of reversal signal that usually appears at the top of an uptrend. Traders consider it as a reliable bearish signal as it can predict investor sentiment and change in price momentum.

Understanding Evening star candlestick pattern

Evening star is a bearish candlestick pattern consisting of three candles: a large bullish candle, a small narrow range candle and a large bearish candle formed at the top of an uptrend. It shows that the uptrend is nearing its end as sellers are stepping in to take control of the market.

The first candle is an up day as a continuation of the uptrend. The second candle is followed by a gap opening and then completed with a doji/spinning top indicating a tight trading range. By seeing the second candle sellers come in and keep the stock from going much higher than the first day’s open.

The third candle almost closes the gap between the first and second candle. 

Instead of a spinning top, if you get the 2nd candle as a doji, then the pattern will be called as evening star doji candlestick pattern. Evening star doji is the second most bearish top pattern next to the abandoned baby or island top formation. It’s also referred to as a bearish doji star.

Rule of recognition

Here are the conditions to be satisfied in order to form Evening star candlestick pattern;

  • There must be an uptrend.
  • The first candle must be a bullish candle showing continuation of the existing uptrend.
  • Second candle gaps open higher but close with a tight trading range showing indecisiveness among bulls and bears. It shows buyers are not interested in buying at that price level. It’s the star which shows a slowdown in the momentum.
  • Third candle must be a bearish candle that opens below the 2nd candle and then closes below the midpoint of the 1st candle.

Few traders use the evening star as a reliable technical pattern which confirms the downtrend. But you should also note that if it signals a failed reversal, then the price could move further up. Therefore, many traders prefer to read it in addition to other technical indicators such as RSI, Stochastic, MACD, Volume, trendline, Support and Resistance.

Opposite of an evening star candlestick pattern is the morning star candlestick pattern, which is considered as a signal for reversal of a downtrend.

Remember, the Evening star is not the only bearish indicator. Other bearish candlestick patterns are dark cloud cover, shooting star, bearish engulfing and hanging man.

Here is a list of candlestick patterns for your reference;

  • Morning Star
  • Bearish Abandoned baby candlestick pattern
  • Bullish Abandoned baby candlestick pattern
  • Three Inside up/down
  • Three outside up/down
  • Inside Bar
  • Bullish Piercing
  • Dark Cloud Cover
  • Spinning Top
  • Shooting Star and Inverted Hammer
  • Hammer & Hanging Man
  • Gravestone, Dragonfly and long-legged Doji
  • Engulfing Candlestick Pattern
  • Spinning Top
  • Marubozu

Be sure you practice identifying and trading these candlestick patterns on a demo account before trading them with real money.

In addition to the disclaimer below, please note, this article is not intended to provide investing or trading advice. Trading in the stock market and in other securities entails varying degrees of risk, and can result in loss of capital. Most investors and traders lose money. Readers seeking to engage in trading and/or investing should seek out extensive education on the topic and help of professionals.

Share
Share on Facebook
Pin
Pin this
Share
Share this
Share
Share on LinkedIn

Categories: Finance Tags: Candlestick

About the Author

CA Bigyan Kumar Mishra is a fellow member of the Institute of Chartered Accountants of India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.

Primary Sidebar

Financial Ratios

  • The 5 Best Investing Books for Beginners
  • Accounting tools you can use to choose a winning stocks
  • What are the tools and techniques used in financial statements analysis
  • Can Price to earnings – P/E ratio be used for stock investing
  • Why Price earnings to growth – PEG is used by investors
  • How Earnings per Share or EPS can help you
  • How to use debt to equity – D/E ratio
  • What is Interest coverage ratio

Don’t see a topic? Search our entire website:

Footer

Trending Now

  • What to look for in the financial statements before investing in stocks
  • How to manage fund while investing in stocks
  • A beginner’s guide to mutual fund investing
  • Why share prices move up and down in stock market
  • Price Action trading – How candlestick helps to read mass psychology

Email Newsletter

Sign up to receive email updates daily and to hear what's going on with us!

Privacy Policy

Stay In Touch With Us

  • Twitter
  • Facebook

Legal Disclaimer

The information available through this Site is provided solely for informational purposes on an “as is” basis at user’s sole risk. The information is not meant to be, and should not be construed as advice or used for investment purposes. Yourfinancebook.com does not provide tax, investment or financial services and advice. We make no guarantees … Continue Reading... about Disclaimer

Copyright © 2024 yourfinancebook.com · All Rights Reserved.