Evening star candlestick pattern

Evening star candlestick pattern is a bearish reversal candlestick trading pattern that indicates the change of existing up trend and beginning of a new trend. This pattern works better after strong uptrend. Evening star candlestick formed with 3 candlestick.

Evening Star candlestick pattern

Day one Big Green day

Day one formed with strong green day. This indicate the existing trend is still intact and lot of buyers still want to buy the stock.

Day Two Doji or small body Candlestick

Day two formed with doji or small body candlestick with gap up. Gap up indicates strong buying pressure at the beging of the day. But after certain period Bull stared to lose control on the move and bear try to take control of the stock. Ultimately either bull or bear failed to take control of the move and stock closed as doji or small body candlestick. This clearly indicate uncertainty of the stock.

Day three Red Candlestick

 

After second day uncertainty, third day stock gap down below the previous day close and bear take control of the stock. At the end of the day stock close red. This third bar confirm the bear control of the trend and down . If third day stock close below 50 percent of first day green bar , this signals very strong reversal of candlestick pattern.

Different type of evening star candlestick pattern

 

Doji evening star pattern formed with doji in the second  day of the pattern.

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Doji evening star candlestick pattern

Doji evening star with engulfing red candle  is a candlestick chart pattern where second day is doji candlestick and third day is big red candlestick engulf the first day green candlestick completely.

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Doji evening star candlestick pattern engulfing red candlestick

Trade setup for Evening Star candlestick

Evening Star candlestick chart

this chart is for CSX from September 2015 to October 2015. At the beginning stock had the very strong uptrend and moved from $26 to $29. Stock made small body candle with a strong green bar at the end of the uptrend. Next day stock gap down and continued to move down all day. At the end of the stock close red strongly. This indicates confirmation of the set up.

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Evening star candlestick pattern Chart

Trade entry

After pattern set up is complete, wait for the next day for stock open. As stock moves down to the low of the previous day, enter the trade with 5 cents below the low of the previous day. Hold the stock until target is hit.

Stop loss or trade exit

Put the stop loss above the high of the doji candlestick. In this chart stop loss is above the $29.67. If stop break this point, pattern is broken and exit this trade immediately.

Bottom line

Daily candlestick is used for this chart pattern. But this set up is same for 5 minute charts as well as weekly charts. That’s means you can use this set up for any time frame. Best is use this set up with combination of other technical indicators.