Evening Star

An evening star is a pattern, with the help of which technical analysts define the time a trend is going to go back. The pattern may be noticed on the candlestick stock-price chart, it contains three parts (i.e. candles). The first is a big green candlestick, the second a little red candle and the third is a big red candle.

Such patterns are connected with the highest point of the uptrend price and usually indicate the upcoming end of the uptrend. While the evening star is a bearish pattern, the morning star is a bullish one. Thus, the evening star may be contrasted with the morning star.

Main principles of an Evening Star

The patterns of the candlestick shape usually represent the information about stocks, but in a graphic way. More precisely, it reflects the stock quote, which is a stock’s bid and ask prices, last traded price, and volume traded over a particular time interval.

The pattern is made of three candlestick, every candlestick is formed from a candle and two wicks. The distance between two wicks reflects the measure, which helps to define the range. The range reflects the gap between the two indicators within one particular trading day. The first is the highest price, the second is the lowest price.

There are two kinds of candlesticks, the first is a long candlestick, it reflects major price changes, the second is short candlestick, it stands for small price changes. Thus, long candlesticks help to determine how much the amount of bought shares or traded contracts was, or, in other words, long candlesticks represent the level of volume. Short candlesticks, in their turn, stand for small price changes.

The evening star shows the decrease that is likely to happen in the near future. It takes 3 days for the evening star to be formed. The first day is the day of pieces that keeps rising, it corresponds to the large green candlestick. The second day is the day little increase, it corresponds to the small green candlestick. The third day is the day of opening price on the level slightly below the previous day level and closing the middle of the first day level. It corresponds to the major red candlestick.

How to determine the evening star

Although the evening star may be regarded as a nice and trustworthy indicator of the appearance of a downward trend, sometimes it’s hard to recognize among the big amount of stock information. In order to determine the pattern, investors and traders may use price oscillators and trendlines. These indicators are great assistants in defining the evening star. It’s better to pay attention to several indicators and not to rely on only one.

The list of bearish indicators isn’t limited to the only evening star. It also comprises the dark cloud cover, the bearish engulfing, the shooting star, bearish harami. There is no the only way to trade, different people pave different ways to success in the trading field.

Example

Here is the schematic example of the evening star:

The first green candlestick demonstrates the price increases, the second green candlestick demonstrates it as well, although the growth is rather smaller to compare with the first one. The last candlestick, the red one depicts that the price has dropped to the middle level of the first candlestick.

These are the most obvious signals, which tell the analysts that the evening star has appeared. Knowing about the forthcoming fall, technical analysts may have thoughts about the selling or shorting securities they have.