The Evening Star pattern is a candlestick pattern that appears at the end of the uptrend and signals a downtrend that is about to take place. It is important for the traders to be aware of these different trading patterns, as the Evening Star is an important one to watch out for. As the Evening Star signals that the uptrend is about to end, its appearance is a red flag for traders and signals that it is time to take profits. In this blog, we will understand the formation of the Evening Star pattern and will also explain how to trade it properly so that the traders could avoid risks.
What is an Evening Star Pattern?
An evening star is a stock price chart pattern that technical analysts use to understand when a trend is reversing. It is a bearish candlestick pattern made up of three candles, a large white candlestick, a red candle, and a small candle. It is associated with the top of an uptrend that is nearing its end. The evening star is opposite the morning star pattern which is indicated by bearish and bullish respectively. Although rare, traders consider this to be a reliable technical indicator.
How does it Work
The bearish engulfing pattern emerges at the end of an uptrend. The structure of the pattern has peculiar characteristics and is easily recognizable. The first candle in the pattern is a small bullish candle followed by a larger bearish candle that engulfs the lower candle. One thing you need to understand is that the pattern is less reliable If the opening price and ending price of the alternate candle are above the first candle. A larger alternate candle suggests a more important bearish pattern than the first larger candle.
How To Trade
-
If you see an engulfing pattern, it is best to exit your long positions or enter your short positions. When taking short positions, place a stop loss near the most recent resistance area and profit targets at the current support area.
-
A smarter way to trade the pattern is to look at the big picture before entering your short positions. For example, if the uptrend is too strong, going short may not always be in your favor. In this scenario, even if the engulfing pattern occurs, the bulls can push the price higher.
-
So, if the overall trend is down and the price has fallen recently, then, you should trade the engulfing pattern. This shows that there will be a long-term downtrend and is useful for your short positions.
Tips
-
The Evening Star Candlestick pattern has highly accurate when it occurs at the end of an uptrend.
-
Can be combined with basic meters for high-precision entry points.
-
Do not use reverse candlestick patterns in a secondary market.
-
Do not trade binary options in a short period of time. The expiration time must be at least 5 minutes.
Understanding the evening risk pattern is essential to avoid risks while trading in it. Follow the mentioned tips to be safe.
