An Evening Star is a three candlestick pattern that indicates a significant turning point in the market. It suggests that a prevailing uptrend has become exhausted and that a new trend of lower prices is coming. A bullish trend is being replaced by a new bear leg for the market.
The perfect set-up has a decisively strong positive Candle 1. Next, there is an opening gap higher into Candle 2. This gap proves to be an exhaustion move as the market then consolidates into the close. The tired uptrend then experiences the first sign of decisive selling with an opening gap lower in Candle 3. This gap up of Candle 2 followed by the gap down of Candle 3 forms the basis of the Evening Star set-up. This is then confirmed when the new selling pressure decisively takes hold for Candle 3i to close decisively lower. The previous uptrend has swung lower to form a new downward phase for the market.
The opposite of the Evening Star is the Morning Star. This is a bullish candlestick set-up at the bottom of a downtrend that signals the beginning of a swing higher into a new positive phase.
| Evening Star | |
| Price action | A three candlestick set-up that signals the end of an uptrend phase. Candle 1: A strong bullish candle, OPEN towards the LOW of the session, with the CLOSE towards the HIGH.Candle 2: The price gaps higher at the OPEN to the trade at a new high. The price then consolidates, ideally with the CLOSE slightly below the OPEN.Candle 3: A gap lower at the OPEN begins a strong negative move. The OPEN is around the HIGH of the daily range, with the CLOSE towards the LOW. |
| Morning Star types: | Evening Star (Classic) The CLOSE price of the second candle is slightly below the OPEN. This forms a small negative move on the session for Candle 2 (even if the CLOSE of Candle 2 is above the CLOSE of Candle 1). The gap up in Candle 2 and the gap down in Candle 3 are very similar. The HIGH/LOW ranges of Candles 1 & 3 are also very similar. |
| Evening Star (imperfect) There are some variations of the Evening Star set-up that leave an imperfect formation. These include: Candle 2 may have a large rangeThe two gaps vary in size.The real bodies of Candlesticks 1 & 3 vary in size.There may be long shadows on Candlesticks 1 & 3. | |
| Evening Doji Star Candle 2 is a Doji. The gap up at the OPEN of Candle 2 consolidates with only small fluctuations throughout the session. The CLOSE of Candle 2 is then the same price as the OPEN of Candle 2. | |
| Bearish Abandoned Baby This is one step further than the Evening Doji Star. The LOW Candle 2 is above the HIGH of Candle 1. The gap down for Candle 3 leaves it HIGH below the LOW of Candle 2. This leaves an unfilled gap down as the market swings decisively lower. This is said to have left Candle 2 entirely abandoned by the price action of Candles 1 & 3. | |
| Psychology | The price has accelerated higher with a final exhaustion gap.The gap higher proves to be the final throws of the uptrend before the market starts to sell off. |
| Confirmation | Only after the strong CLOSE lower of Candle 3 can confirmation be seen. |
| High Conviction | The CLOSE of Candle 3 is below the OPEN of Candle 1. |
| Lower Conviction | See above for conditions of the imperfect Evening Star.Additionally, if the market has not been strongly trending higher before the Evening Star it questions the validity of the set-up. |
| Potential Stop-Loss | The Evening Star is seen as a key high in the uptrend. Stop-losses should therefore be placed above the HIGH of Candle 2. |
