Candlestick Pattern :

• Evening Star.

Description

• Widely regarded as one of the most common and effective patterns.
• It is a Top Reversal pattern depicted by 3 candlesticks.
• The 1 st candle is a long bullish candle that forms at the top of an up trend.
• The 2nd candle that forms is is a small candle that “gaps” upwards.
• Color of the 2nd candle doesn’t matter, black or white is both valid.
• The 3rd candle that forms “gaps” downwards into a long bearish candle that closes at least 50% or more into the 1st candle’s real body.

Trading Psychology :

• The Bulls are running the show with Price moving upwards indicating the continuation of the up trend shown by the 1st candle.
• As shown in the 2nd candle, a “gap” away from the upward move means that there is a sudden increase in conviction of the Bulls to push the price further up.
• However, the conviction suddenly stalls and reverses direction with the Bears making a challenge and ending the session with a small candle or Spinning Top.
• The short candle length also indicates that the Bulls are exhausted after the long up move and the Bears are slowly creeping in to take over.
• The reason why the color of the 2nd candle does not matter is that no matter whether it is black or white, the Bears have already began to make their move to reverse the trend and momentum is on their side.
• The bearish 3rd candlestick clearly indicates that a reversal of sentimental in the opposite direction has taken place.
• And once the real body of the 3rd candle gradually extend upwards, beyond 50% of the 1st candlestick’s real body, the up trend is considered broken and the Bears have taken control.
• Price is on its way down.

My Thoughts :

• Without the shadow of a doubt, the Evening Star candlestick is indeed one of the more accurate candlestick patterns that most traders love to trade, including myself.

• An important point to note is that in Forex Trading, since it is being traded 24 hours, “Gaps” between the closing price and opening price are very rare unlike other financial markets.
• That is why when identifying such patterns in FX trading, we can ignore the “Gap” portion of the candlestick pattern.
• This particular pattern is fairly reliable across all time frames but my personal preference is again using it in the 1 hour time frame.

However, don’t take all the signals that comes for granted, watch what price is doing first, Price Action precedes all indicators and patterns.

Have a safe and profitable trading day ahead.