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What is Evening Star Candlestick Pattern

10 Aug 2023

Introduction

  • It is important to learn about the evening star candlestick pattern if you are interested in trading the financial markets.
  • It is a bearish reversal pattern that helps you identify potential turning points in an uptrend.
  • This article will discuss its concept and usage in trading strategies.

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What Does the Evening Star Candlestick Pattern Signify?

  • Technical analysts commonly utilize the evening star candlestick pattern to predict future price reversals to the downside.
  • This pattern consists of three candles: a large positive candle, a small-bodied candle, and a negative candle.
  • The evening star patterns appear at the top of an ascending price trend and signal that the trend is about to reverse.
  • The opposite of the evening star pattern is known as the morning star pattern. This pattern indicates a bullish reversal

How Do I Trade With the Evening Star Candlestick Pattern?

  • The evening star candlestick pattern has three candles, as shown in the above chart.
  • The second one (candle 3) is small and shows uncertainty and a slowing uptrend.
  • The third one (candle 4) is large and signals selling pressure by the bears.
  • Traders can enter a sell position at the opening of the next bearish candle.
  • They can place their target at the previous support level (below the current level) and stop loss at the previous resistance level (above the current level).
  • It’s important to maintain a positive risk-to-reward ratio and seek the required expert guidance from professionals like Motilal Oswal.

What are the Pros and Cons of the Evening Star Candlestick Pattern?

  • One key advantage of this pattern is that it occurs frequently in the charts and presents well-defined entry and exit levels.
  • Also, it is easy to identify as it occurs frequently in the charts. If the reversal fails, the price may continue to rise instead of going down.
  • The signal is confirmed when this pattern is backed by other technical indicators like RSI and volume. It’s important to note that this pattern is not always reliable.
  • Therefore, it should be used in combination with other technical indicators.

Conclusion

  • The evening star candlestick pattern is a bearish reversal pattern, consisting of three candles.
  • The first candle is a large positive candle, the second candle is small and either bullish or bearish, and the third candle is a large negative candle.
  • The pattern occurs frequently in the charts and provides clear entry and exit points for traders.
  • However, it is important to note that the pattern is not always reliable and should be used with other technical indicators.

 

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