Euro Pattern Coins

Euro Pattern Coins

The evening star candlestick pattern is a bearish reversal pattern. It consists of three candlesticks. The formation must be validated using the following rules.

1. The inbound trend must be strongly bullish. I would recommend using a 20 day and 50 day moving average system for determining the inbound trend. Ideally, the 20 day MA would be above the 50 day MA, and the 20 day MA would always be rising.

2. The first candlestick should close above the open, with a long real body, and minimal shadows. This is a bullish, white candlestick.

3. The second candlestick should gap up above the first candle, and should have a small real body. The candlestick can be white or black, can be a doji, and can have long shadows.

4. The last candlestick will gap below the close of the second day, but it should not close below the close of the first day's candlestick.

5. the third candlestick must be black (bearish), and close below the mid-line of the first day's candlestick.

6. The bottom shadow on day three should be very short or non existent

How To Validate The Evening Star Pattern.

Validating the evening star pattern is quite easy. First, you should check volume. Volume on the first candle should be lower, volume on the second days gap should be very high, as well as on the third days reversal.

Second, the size of the first and third day's candlesticks are said to be an indicator of the strength of the reversal. Extremely long real bodies indicate a strong reversal pattern with strong momentum to the downside.

Third, if the second candle is a doji, the more significant the toping action

Fourth, identify areas of overhead resistance. If this pattern approaches longer term resistance, the pattern is significantly more reliable, as well as the pattern retracing to a significant Fibonacci retracement level

Technical Indicators

Since Evening Star patterns are reversal patterns, traders should look for divergences in momentum indicators such as the MACD, or 3 / 10 oscillator. A volatility indicator, such as the On Balance True Range indicator should show increased volatility. Finally, a volume based indicator be sideways to descending as price rises.

Performance

The overall performance of the evening star pattern is very impressive, in fact, it is the fourth best performing candlestick pattern overall according to Thomas Bulkowsi's Encyclopedia of Candlestick Charts.

Reliability

The evening star pattern was validated as a reversal pattern in a whopping 72% of all instances, ranking it 10th out of 103 different patterns.

Trading notes:

Some traders prefer to wait for confirmation of the reversal pattern by waiting for a breakout below the low of the third day's candle. Typically the evening star pattern is reliable enough not to wait for this confirmation. The resulting down trend tends to be very stable, so waiting for confirmation won't effect the bottom line of trading this pattern greatly.

Who else wants to make a fortune trading evening star patterns? Learn how to screen for evening star patterns now!

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