Candlestick Charting The Evening Star Reversal Pattern
WHY CANDLESTICK CHARTING?
In this Company Invest series, we will examine the most powerful candlestick patterns. There are 6-8 patterns we incorporate here at Company Invest. When performing technical analysis for a stock or ETF, candlestick charting should always be considered.
One important thing to remember about candlestick charting: No matter what the signal is, you need a confirming candle to print after the signal (either above or below where the signal print was depending on if it's a bullish or bearish candle). Confirming candles validate candlestick charting signals.
THE EVENING STAR REVERSAL SUMMARY
The evening star reversal is a 3-candle pattern and is one of the most powerful signals in candlestick charting. It is a bearish reversal pattern that takes place at the end of an up move and has a very strong reliability. The sister pattern to the evening star reversal is a morning star reversal and is a bullish signal. We'll examine that pattern in another post.
THE EVENING STAR REVERSAL SETUP
1. Evening Stars start with a continuation of a bullish move. The first day is normally a long white bullish candlestick.
2. The second day begins bullishly with a gap up open, however a sell-off makes the market close at or near the open for the day. The first two candles suggest a loss of bullish momentum. Ideally, the second day's candle will be red, although it can still be valid as a white candle as well. Just these first two candles alone are considered a bearish signal (called a shooting star).
3. However, the third candle is what really makes this candlestick charting pattern powerful. Day three a sharp sell-off after the market open. Analysts want day threes high to be near equal to its open price, suggesting the market sell-off has no uncertainty in the new direction. The day 3 Evening Star Reversal candle should be red and finish at least midway down into candle 1 to be most powerful.
TRADING THE EVENING STAR
You can trade this pattern 1 of 3 ways.
• Short the stock at the end of day 2 right before the close. Use a tight stop just a little above the day 2 intraday high.
• Short the stock at the end of day 3, again with a stop at the day 2 high. This is a safer entry, but you may lose a little juice from the trade also.
• Wait until the stock closes BELOW the day 3 closing (confirming candle). This is the safest entry of all, but you may have missed out on a good part of the move.
Good luck and look for more candlestick charting patterns in coming Company Invest posts.
In this Company Invest series, we will examine the most powerful candlestick patterns. There are 6-8 patterns we incorporate here at Company Invest. When performing technical analysis for a stock or ETF, candlestick charting should always be considered.
One important thing to remember about candlestick charting: No matter what the signal is, you need a confirming candle to print after the signal (either above or below where the signal print was depending on if it's a bullish or bearish candle). Confirming candles validate candlestick charting signals.
THE EVENING STAR REVERSAL SUMMARY
The evening star reversal is a 3-candle pattern and is one of the most powerful signals in candlestick charting. It is a bearish reversal pattern that takes place at the end of an up move and has a very strong reliability. The sister pattern to the evening star reversal is a morning star reversal and is a bullish signal. We'll examine that pattern in another post.
THE EVENING STAR REVERSAL SETUP
1. Evening Stars start with a continuation of a bullish move. The first day is normally a long white bullish candlestick.
2. The second day begins bullishly with a gap up open, however a sell-off makes the market close at or near the open for the day. The first two candles suggest a loss of bullish momentum. Ideally, the second day's candle will be red, although it can still be valid as a white candle as well. Just these first two candles alone are considered a bearish signal (called a shooting star).
3. However, the third candle is what really makes this candlestick charting pattern powerful. Day three a sharp sell-off after the market open. Analysts want day threes high to be near equal to its open price, suggesting the market sell-off has no uncertainty in the new direction. The day 3 Evening Star Reversal candle should be red and finish at least midway down into candle 1 to be most powerful.
TRADING THE EVENING STAR
You can trade this pattern 1 of 3 ways.
• Short the stock at the end of day 2 right before the close. Use a tight stop just a little above the day 2 intraday high.
• Short the stock at the end of day 3, again with a stop at the day 2 high. This is a safer entry, but you may lose a little juice from the trade also.
• Wait until the stock closes BELOW the day 3 closing (confirming candle). This is the safest entry of all, but you may have missed out on a good part of the move.
Good luck and look for more candlestick charting patterns in coming Company Invest posts.
