Introduction
- An evening star is a candlestick pattern. Commonly referred to as a stock-price chart pattern, it is used for technical analysis to detect the reversal of the trend.
- Traders use this pattern as a reliable technical indicator to predict the future price reversal in the stock market.
- The evening star is a bearish indicator, while the morning star is a bullish indicator.
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What is an Evening Star Pattern?
An evening star is a bearish reversal candlestick pattern. Traders use it for technical analysis and to determine the future price reversal of any stock.
Traders view this pattern to determine that a downward trend has started. The opposite of the evening star pattern is the morning star pattern, which showcases the market bottom.
How to identify an evening star pattern
The evening star includes three candles:
- Large bullish green or positive candlestick
- Small bullish or bearish candle
- Large bearish red or negative candle
This evening star pattern shows the price uptrend and indicates when it is going to end. This way, one identifies the evening trend pattern.
How does the Evening Star Pattern work?
The evening star pattern usually forms over a period of 3 days.
- On the first day, a large white candle signifies the uptrend in stock price.
- On the second day, a small bullish or bearish candle indicates a more modest uptrend in stock price.
- On the third day, a large red candle starts at a price below the previous day's price and then closes near the middle of the first day's price. This is the initial indication of new selling pressure.
Pros and cons of evening star pattern
- The pros of using the evening star pattern for analysis are that it represents the right time for entry and exit levels.
- One must know that if a price reversal fails, the price will not go down, but will continuously rise.
- The evening star pattern is frequently shown on the chart and is easily identifiable.
- When the evening star pattern is backed with other technical indicators, it gives a confirmed signal. This might not always be a reliable indicator.
- Therefore, always use it in combination with other technical indicators.
In conclusion
- The candlestick pattern shows the stock's open, high, low, and close price over a given period.
- The evening star pattern is a strong indicator showing future price declines.
- This usually happens at the top of the uptrend, indicating that soon this uptrend will end.
- Traders must maintain a positive risk-to-reward ratio to make wise decisions based on the analysis.
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