The previous post introduced very detailedly about the Morning Star bullish candlestick pattern. Today I will introduce to you the opposite of the Morning Star candlestick pattern. It is an Evening Star candlestick pattern that signals an early reversal from up to down in the future. Let’s go through it quickly and build a good trading strategy upon it.
Contents [hide]
- 1 What is the Evening Star candlestick pattern?
- 2 Meaning of the Evening Star candlestick pattern
- 3 Capital management method for trading
- 4 Principles to keep in mind when using the Evening Star candlestick pattern
- 5 Review and analyze opened orders in Olymp Trade from July 06 to July 10
- 5.1 July 06, 2020
- 5.2 July 09, 2020
- 5.3 July 10, 2020
- 6 One last word
What is the Evening Star candlestick pattern?
Evening Star is a strong reversal candlestick pattern in the near future. It is similar to the afternoon that signals the night will cover the sky. This candlestick pattern indicates that prices are likely to decline.
It consists of 3 candles as follows:
– The first candlestick is a long bullish candlestick in an uptrend.
– The second candlestick is a Doji candle (The color doesn’t matter). It shows the ongoing tension between the sellers and the buyers.
– The third candlestick is a bearish candlestick with a minimum length of 50% of the first candle.
Meaning of the Evening Star candlestick pattern
When the Evening Star candlestick pattern appears, it raises up the fear of the crowd. So a decrease in prices in the near future is what often happens in the market. Going into every detail, we can see that the first candle is a long bullish candle following an uptrend. But the second candlestick is a Doji candle, which causes the momentum to slow down or stop completely. And then the third candle is a bearish candlestick, ending the previous increase and forming a downtrend.
A short candlestick pattern (5-minute time frame) projected on a long time frame (15 minutes) will be a Shooting Star candlestick. Because there are 3 candles, the Evening Star pattern is more reliable and preferred for use.
In the financial market, price movements are always unpredictable, so a standard pattern is quite rare. Instead, there will be patterns with similar characteristics which can also predict a price decrease very accurately.
All variations from the standard pattern occur on the second candlestick. If it is a candle with a long upper tail, the bullish momentum has been blocked there. There is a high probability that the price will decrease. However, you should wait for the third candlestick to appear for the pattern to be confirmed before opening an order.
When there is a bullish or bearish gap appearing in the Evening Star pattern, the market is getting excited. The second candle looks out of place so this pattern is called the Abandoned Baby. This is considered a strong bearish signal.
Capital management method for trading
Signals by candlestick patterns are less likely to occur but may apply to many assets. But when there are too many signals, you need to filter and calculate the probability of success when opening an order. Big transactions are very risky when there is no time to analyze in detail. So the Classic method is a savior for traders who trade with this candlestick pattern.
With such capital management, you will create absolute safety for your account. Because the accuracy of the Evening Star candlestick pattern is statistically 70-80%. We can confidently open a profitable DOWN order if the pattern shows up.
Principles to keep in mind when using the Evening Star candlestick pattern
– Open a DOWN order once the Evening Star candlestick pattern fully appears.
– Do not open orders with an expiration time of fewer than 5 minutes because the pattern will be ineffective.
– Do not trade during the time when strong news is released.
– Can be applied to all types of assets.
– Never open many orders at once or consecutively.
Review and analyze opened orders in Olymp Trade from July 06 to July 10
If the Evening Star candlestick pattern appears correctly, then choose a DOWN order as default for the next candle. Ignore all unclear signals to raise the win rate to the highest.
July 06, 2020
1st order: Evening Star candlestick pattern + resistance = Opened a DOWN order right after. The prediction was correct. I received a profit of 82% of the investment.
July 09, 2020
2nd order: The Evening Star candlestick pattern appeared in an uptrend. The market started struggling but the victory belonged to the buyers. Opened a DOWN order as soon as the pattern fully appeared.
The correct prediction yielded a profit of 82% of the initial investment.
3rd order: The Evening Star candlestick pattern appeared in an uptrend. Opened a DOWN order decisively when the pattern was completed.
Reasons for losing: It was correct and eligible to open an order. Losing was due to the market’s randomness. This is a winning order for me but the losing result is also very normal.
July 10, 2020
4th order: The trend was up, but the bullish momentum exhausted as the candlestick bodies were getting smaller and smaller. The Evening Star candlestick pattern appeared with the second candle which was a Gravestone Doji. This indicated that the uptrend had ended. Opened a DOWN order as soon as you qualify for opening order with the Evening Star candlestick pattern.
The correct prediction yielded a profit of 82% of the initial investment.
5th order: It was still an uptrend. However, an Evening Star candlestick pattern appeared signaling an imminent reversal from up to down. Opened a DOWN order when the candlestick pattern appeared completely.
The correct prediction yielded a profit of 82% of the initial investment.
You have somewhat identified the winning rate when using the Evening Star candle model. Although it does not appear frequently on candlestick charts, Its appearance is highly accurate. So you have to be patient if you want to make a profit.
One last word
Every strategy takes the price action and crowd psychology as a core. Analyze how the curreny flows are working. Predict how prices will go in the near future. And then, the candlestick pattern will be an entry signal.
You may have a hard time getting to know it at first, but you will gradually improve in the trading process. If you do not know the characteristics of each candlestick pattern, you should trade on a Demo account to get used to them. There is no need to rush into the market without being sure of the win. I wish you success in trading.
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