Evening Star Candlestick

Evening Star Candlestick

The evening star candlestick indicates that bad things are on the horizon for traders, or in other words, lower stock prices may be on their way. This pattern is a top reversal signal and is the opposite of the morning star signal. Investors must be careful when identifying the evening star candlestick  pattern since it tends to be more difficult to identify than other Japanese candlesticks patterns. The criteria required, in order for this signal to be valid includes the following conditions.

First, the stock must have been in a definite uptrend before this signal can occur. (The bulls are in complete control on the first day.) Second, the first day of the signal must be a long green (or white) body continuing the current uptrend. Third, the second day (indecision day causing the star candle formation) increases the probabilities of a reversal. (supply and demand are equal) Lastly, the third day should be a long red (or black) body that closes down at least halfway into the body of the first day’s green candle. This is the proof the bears have stepped in with strength. (supply is far greater than the demand)

Additional pattern notations for the evening star candlestick:
~The larger the white or black candle, the greater force for a reversal.
~A gap (or window) between the first and second day, adds additional odd for the reversal. (Even more advantageous is a gap occurring before and after the star candle) Note: A gap is not as common and is not required, but when you witness a gap ‘pay head’ there is potential for even greater force.
 ~The lower the third day’s candle comes down in relation to the first day’s white candle, is even more compelling as it will cause the reversal to occur with greater strength.

What does the evening star candlestick indicate is happening in the markets?
Again, this trend means that a strong uptrend has been in effect and the bulls are in full control. A tug-of-war ensues while the sellers begin to take profits. This causes great concern for the bulls, and eventually the bears are able to take over. 

There are many more signals in addition to this important reversal pattern including the bullish engulfing pattern, the candlestick hammer signal, the inverted hammer candlestick and the hanging man candle. You should begin by studying the doji candlestick chart first and then continue to learn about the other signals utilized in candlestick analysis. Learn how to increase your profit though candlestick trading online and join me in my 2-Day Trading for Profits Online Training Clinic.

Please continue your Japanese candlesticks education and read about the shooting star candlestick reversal signal.