The Evening Star pattern is viewed as a bearish reversal pattern in technical analysis. It usually occurs at the top of an uptrend.
This guide explains what the Evening Star pattern is and how to recognize and interpret it with the help of an example chart and trade.
How to Identify an Evening Star
The Evening Star 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 in charge – new highs are usually 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.
The most significant candlestick occurs on Day 3. It 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.
Evening Star Example Trade
The chart below of Exxon-Mobil (XOM) stock shows an example of an Evening Star bearish reversal pattern that occured 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 trendline that had served as support for XOM for the previous week. Both the trendline break and the classic Evening Star pattern gave traders a potential signal to sell short Exxon-Mobil stock.
Please note, this is an example – not a recommendation.
Where to Trade Using Technical Analysis
If you’re interested in trading using technical analysis patterns like the Evening Star, have a look at our reviews of these regulated brokers available in to see what tools they offer.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Learn more about technical analysis charting concepts and strategies, including:
- Time Series Forecast
- Typical Price Moving Average
- Standard Error Bands
- Market Thrust
- Adaptive Market Averages
- Average Directional Movement
For all the basics on how to trade commodities, see our introduction to commodity trading.