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 Forex market.
The Evening Star Candlestick Explained
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:
- Identify the current trend with the market exhibiting its higher lows and highs.
- Locate the large bullish candle that generally results from a huge purchasing pressure while the existing uptrend is continuous. This is where you are supposed to avoid going short. Traders need to opt for longer trades instead.
- Identify the second Evening Star candle, which is also known as the Doji candle. It signals that the uptrend is about to fatigue.
- Place a stop loss to benefit from a successful reversal and manage the risks after the market's lower highs and lows.