Evening Star Candlestick Pattern: How to trade and profit

The Evening Star candlestick pattern is often regarded as a reliable indicator of potential trend reversals in the financial markets. Frequently used by technical traders, this three-candle formation signals a shift from bullish momentum to bearish sentiment, often marking the early stages of a downtrend.

Understanding this pattern is useful for traders seeking to identify high-probability shorting opportunities or to protect profits before a potential market downturn. But what makes the Evening Star pattern effective, and how can traders use it to refine their trading strategies?

In this article, we’ll explore the structure of the Evening Star candlestick pattern, how it forms, and the key confirmations traders should look for before taking action. Whether you’re new to candlestick analysis or looking to enhance your technical trading skills, this guide will provide the clarity needed to integrate this powerful pattern into your trading approach.

The Evening Star is a three-candle bearish reversal pattern that typically acts as a technical analysis signal at the top of an uptrend. It is a reliable signal indicating that bullish momentum is fading, and sellers might be about to take control of potential reversals.

• The first candle is a strong bullish (green), indicating continued bullish momentum, buying pressure, or an upward trend.
• The second candle is small-bodied (green or red) and represents indecision in the market.
• The third candle is a large red bearish indicator candle, closing well into the first candle’s body, confirming the potential reversal of bearish momentum.

Trading strategies built on the foundation of the evening star pattern are the opposite of the Morning Star candlestick pattern.  It acts as a sign that the uptrend may be ending and that a price drop could follow. It is important to notice the resistance level and avoid false signals when using technical indicators in your trading decisions. 

The Evening Star candlestick pattern is illustrated below:

• Appears at the top of an uptrend, signifying the last of the upward momentum.
• Three-candle formation: bullish candle, which is followed by a small candle indicating indecision and a strong bearish candle.
• The third candle closes well into the body of the first, confirming weakness.
• The general consensus is that the pattern works better when followed by high trading volume on the third candle.

The Evening Star can be a valuable tool that tells a simple but powerful story about market sentiment and loss levels. It therefore helps us avoid potential losses from long positions in the stock market or enter short signals in a timely manner. 

The first candle reflects bullish dominance, where buyers are still in control. The key support level to this pattern is the second candle, usually a Doji candle or a small-bodied candle, which signals indecision—buyers are losing steam, and sellers are testing the waters. The third candle is where things change: selling pressure increases, pushing a downward trend aggressively.

This resistance level shift suggests the bullish trend is losing momentum, and a potential bearish reversal could be underway. The faster and deeper the third candle drops, the stronger the conviction of the sellers being confident about the closing price charts and taking advantage of the lowest prices.

Market Conditions

• Works best in trending market reversals—specifically at the top of a bullish candle.
•  More reliable trading decisions follow when the volume is high on the third candle.
• Less effective in sideways (choppy) markets, where price action is indecisive.
• May work better in high-volatility environments, where reversals are sharper.

 Stop-loss placement

• Above the second candle’s high (tight stop for aggressive traders).
• Above the first candle’s high (wider stop for more confirmation).
• Backtesting is critical before using this pattern to define stop losses and profit targets in a trading system.

The evening star pattern is a warning, not a guarantee. It can fail when:

• The third candle does not close below the green candle’s midpoint.
• There is no follow-through selling in the next few candles.
• The market is in a strong bullish trend with heavy buying interest.
•  A false signal occurs, trapping short traders and forcing a move higher.

If you want to systematize the use of the evening star pattern, consider these basic entry rules:

1. Identify the pattern at the top of an uptrend.
2. Enter a short trade when the third candle closes below the midpoint of the first candle.
3. Use a stop-loss above the second candle’s high.
4. Consider an exit strategy such as:
   • A fixed percentage profit target.
   • A moving average cross.
   • A trailing stop based on ATR (Average True Range).

Always backtest before using any pattern in a trading strategy.

// Amibroker AFL code to detect the Evening Star candlestick pattern

FirstBullish = Ref(C,-2)>Ref(O,-2) AND (Ref(C,-1)-Ref(O,-2))>(Ref(H,-2)-Ref(L,-2))*0.6; // Large bullish body

SecondSmall = Abs(Ref(C,-1)-Ref(O,-1)) < (Ref(H,-1)-Ref(L,-1))*0.4 AND Ref(H,-1)>Ref(H,-2) AND Ref(L,-1)>Ref(C,-2); // Small body+gap

ThirdBearish = C<O AND C<(Ref(O,-2)+Ref(C,-2))/2 AND C<Ref(O,-1) AND C<Ref(C,-2); // Closes into the first candle’s body

EveningStar = FirstBullish AND SecondSmall AND ThirdBearish;

Links to articles about other Candlestick Patterns

1. Doji
2. Hammer
3. Inverted Hammer
4. Bullish Engulfing
5. Bearish Engulfing
6. Morning Star
7. Evening Star
8. Shooting Star
9. Hanging Man
10. Piercing Pattern
11. Dark Cloud Cover
12. Three White Soldiers
13. Three Black Crows
14. Dragonfly Doji
15. Gravestone Doji
16. Spinning Top
17. Marubozu
18. Tweezer Top
19. Tweezer Bottom
20. Bullish Harami 
21. Bearish Harami
22. Rising Three Methods
23. Falling Three Methods
24. Bullish Abandoned Baby 
25. Bearish Abandoned Baby 
26. Bullish Kicker 
27. Bearish Kicker
28. Three Inside Up
29. Three Inside Down
30. Upside Gap Two Crows
31. Mat Hold
32. Upside Tasuki Gap
33. Downside Tasuki Gap