The Evening Star Pattern is a bearish reversal pattern, usually occurring at the top of an uptrend. The pattern consists of three candlesticks:
- Large Bullish Candle (Day 1)
- Small Bullish or Bearish Candle (Day 2)
- Large Bearish Candle (Day 3)
The first part of an Evening Star reversal pattern is a large bullish green candle. On the first day, bulls are definitely in charge, usually new highs were made.
The second day begins with a bullish gap up. It is clear from the opening of Day 2 that bulls are in control. However, bulls do not push prices much higher. The candlestick on Day 2 is quite small and can be bullish, bearish, or neutral (i.e. Doji).
Generally speaking, a bearish candle on Day 2 is a stronger sign of an impending reversal. But it is Day 3 that is the most significant candlestick.
Day 3 begins with a gap down, (a bearish signal) and bears are able to press prices even further downward, often eliminating the gains seen on Day 1.
The chart below of Exxon-Mobil (XOM) stock shows an example a Evening Star bearish reversal pattern that occurred at the end of an uptrend:
Day 1 of the Evening Star pattern for Exxon-Mobil (XOM) stock above was a strong bullish candle, in fact it was so strong that the close was the same as the high (very bullish sign). Day 2 continued Day 1's bullish sentiment by gapping up. However, Day 2 was a Doji, which is a candlestick signifying indecision. Bulls were unable to continue the large rally of the previous day; they were only able to close slightly higher than the open.
Day 3 began with a bearish gap down. In fact, bears took hold of Exxon-Mobil stock the entire day, the open was the same as the high and the close was the same as the low (a sign of very bearish sentiment). Also, Day 3 powerfully broke below the upward trend line that had served as support for XOM for the past week. Both the trend line break and the classic Evening Star pattern gave traders a signal to sell short Exxon-Mobil stock.
The Evening Star pattern is a very powerful three candlestick bearish reversal pattern. The bullish equivalent of the Evening Star is the Morning Star pattern.
The Evening Star pattern is opposite to Morning Star and is a reversal signal at the end of an up-trend. The pattern is more bearish if the second candlestick is filled rather than hollow.
Evening star formations can be useful in determining trend changes, particularly when used in conjunction with other indicators. Many traders use price oscillators and trend lines to confirm this candlestick pattern.