Evening Star Candlestick Pattern: All You Need to Know| My Espresso

Trading with Evening Star Candlestick Pattern Trading

The stock market in India is a hub of opportunities for those interested in all things investments. But unlike what many people may have to say, trading in the stock market is never a matter of luck; you need hard work, a deep understanding of the market, a thirst for knowledge and a mindset that helps you accept gains and inevitable losses as they come.And to help out investors and traders, especially the latter, trading tools such as trading charts and market screeners are required.

Published on 27 January 2022

New traders learn to use these tools by studying them or getting help from their more experienced peers. But while quite a few tools are simple to understand, others like Japanese candlestick patterns such as the morning star and evening star candlestick pattern could take time and experience.

What is Candlestick Pattern in Trading?

The candlestick pattern is a market indicator used by technical indicators to gauge the highs and lows of pricing in the market. While a bullish pattern indicates an increase in the price, the bearish pattern indicates a fall in the price. However, there is no guarantee that a candlestick pattern is a final word like any other indicator.

In the forex market, the star candlestick pattern helps traders understand the most suitable time to enter the market by spotting the reversals correctly. For example, a pattern created by three candles denotes a market reversal and is known as an evening star candlestick, and it takes about three days for the pattern to show.
Also Read: Risk Management in Forex Trading

It starts with a large white candle which signifies a steady rise in prices. On the second day, a smaller candle indicates a comparatively smaller rise in the prices, while on the third day, a large red candle will create a mark at a price below the second day, ending near the middle of the first day’s pattern.

When technical traders follow the evening star candlestick pattern, it helps them understand when the upward momentum of the market is coming to a close and when the bearish phase is about to mark the start of a downtrend.

How to Identify and Trade with Evening Star Candlestick Pattern?

If you want to identify and trade with the evening star candlestick pattern, only identifying the three candle patterns on the forex chart will not suffice. You will need to have studied the earlier price movement and the place of the pattern on the current trends. Here is how you can read the evening star candlestick pattern:

  • Look out for the large bullish candle: When there is an upsurge in the buying trends, you will be able to spot a bullish candle. This is when a trader can seek long trades until there is any indication of a reversal.
  • Identify the small bearish/bullish candle: A small candle is indicative of the first signs of a market that is facing a slow-paced uptrend. Such a market is also called an undecided and directionless market, and the candle is known as a Doji candle.
    Also Read: What is Doji Candlestick Pattern?
  • Meaning of large bearish candle: A large bearish candle is meant to indicate the first signs of a fresh upsurge in selling. In the case of non-forex markets, this candle will start below the close of the earlier candle and mark the beginning of a new downtrend.
  • Formation of the bearish evening star candle: Quite like the small bullish or bearish candle, this evening star candle can indicate that the market lacks direction. And again, a Doji candle is likely to show up when the market is flat.

Conclusion

The reason why candlestick patterns are deemed to be so complicated is that there are about 35 known candlestick patterns that a trader would need to know of. In a fast-moving market, a star candlestick pattern can help traders make quick decisions. While it is always advisable to make use of trading tools such as price charts, screeners and indicators, studying candlestick patterns may take a lot more dedication and effort.

Chandresh Khona
Team Espresso

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