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The Evening Star Japanese Candlestick Pattern

The evening star candlestick pattern is a bearish reversal pattern. It consists of three candlesticks. The formation must be validated using the following rules.

1. The inbound trend must be strongly bullish. I would recommend using a 20 day and 50 day moving average system for determining the inbound trend. Ideally, the 20 day MA would be above the 50 day MA, and the 20 day MA would always be rising.

2. The first candlestick must be white (bullish), with a longer than average real body. This means the candle should be long, with small shadows.

3. The second candlestick should gap up above the first candle, and should have a small real body. The candlestick can be white or black, can be a doji, and can have long shadows.

4. The third candlestick should gap lower then the second days candle close, but above the first candlestick’s close.

5. the third candlestick must be black (bearish), and close below the mid-line of the first day’s candlestick.

6. The bottom shadow on day three should be very short or non existant

Validating the pattern

Validating the evening star pattern is quite easy. First, you should check volume. Volume on the first candle should be lower, volume on the second days gap should be very high, as well as on the third days reversal.

Second, the larger the white and black candles, the higher the probability of a reversal

Third, if the second candle is a doji, the more significant the toping action

Fourth, if price is approaching old resistance, or a significant fibonacci retracement level, the more significant the topping action.

Technical Indicators

Since Evening Star patterns are reversal patterns, traders should look for divergences in momentum indicators such as the MACD, or 3 / 10 oscialltor. A volatility indicator, such as the On Balance True Range indicator should show increased volatilty. Finally, a volume based indicator be sideways to descening as price rises.

Performance

The overall performance of the evening star pattern is very impressive, in fact, it is the fourth best performing canldestick pattern overall according to Thomas Bulkowsi’s Encyclodpedia of Candlestick Charts.

Reliability

The evening star pattern was validated as a reversal pattern in a whopping 72% of all instances, ranking it 10th out of 103 different patterns.

Trading notes:

Some traders prefer to wait for confirmation of the reversal pattern by waiting for a breakout below the low of the third day’s candle. Typically the evening star pattern is reliable enough not to wait for this confirmation. The resulting down trend tends to be very stable, so waiting for confirmation won’t effect the bottom line of trading this pattern greatly.

Tags: candlestick, evening, japanese, pattern, star

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