What is the Evening Star pattern and how does it work? The Evening Star candlestick refers to the type of three-candle pattern. Traders use it to detect the price reversal when trading Forex. It actually helps traders to notice the price reversal. As a result, they have a great opportunity to enter the market at its most attractive levels. So, the Evening Star pattern is not just to spot the reversal, but also to spot it correctly, which is more important especially on the market.
It mainly refers to the bearish three-candle pattern that mainly occurs on the uptrend. When it appears, it means that the upward momentum is slowing down. To use the pattern correctly, you will need to learn how to identify the Evening Star candlestick on the trading chart.
Not only will you need to spot and identify each of the three candles, but also to be aware of the previous price action to associate the appearing of the pattern within the existing trend. So, to identify the Evening Star candle, you will need to:
It is the opposite (bullish) version of the Evening Star candle that signals about the potential turning point when bulls are trading on a fallen market. Both patterns can be used with actually the same analysis although moving in the opposite direction. The rest is the same.
Now, let's have a look at how you can implement the Evening Star candlesticks under real market conditions. Keep in mind the following steps do not guarantee success. However, they reflect the example of experienced traders and prevent beginners from huge losses.
The first thing you need to do is to set the timeframes for the Evening Star chart correctly. The period will result from the trading strategy you use. What's more, traders need to change those periods from time to time.
Look for the daily close and open prices. Also, track the price movement when it reaches its highs and lows. This is the basic knowledge every trader should have. Look for the prices inside the candle as well as those that can be found in the wicks or shadows.
This stage is very simple. You only need to wait until the daily RSI signals about the overbought market when crossing above 70. Make sure you have the RSI indicator installed on MT4. It is free to download and easy to integrate with the trading platform.
Short selling is a simple trading strategy when you do not actually owe the asset to trade but borrow it from the broker. The idea is pretty simple: when the price goes down, you purchase stocks at a lower price to pay the broker back and make a profit on the price difference.
That is it! Trading with the Evening Star candlesticks is very simple although it still requires an understanding of the technical analysis along with skills to use some indicators. Moreover, it would be wise of you to set stop-losses in advance.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.