What Is an Evening Star Pattern?

An Evening Star is a stock-price chart pattern used by technical analysts to detect when a trend is about to reverse. It is a bearish candlestick pattern consisting of three candles: a large white candlestick, a small-bodied candle, and a red candle.

Evening Star patterns are associated with the top of a price uptrend, signifying that the uptrend is nearing its end. The opposite of the Evening Star is the Morning Star pattern, which is viewed as a bullish indicator.

Key Takeaways

  • An Evening Star is a pattern used by technical analysts to predict future price declines.
  • Although it is rare, the Evening Star pattern is considered a reliable technical indicator.
  • The Evening Star is the opposite of the Morning Star pattern. The two are bearish and bullish indicators, respectively.

How Evening Star Patterns Work

A candlestick pattern is a way of condensely presenting certain information about a stock. Specifically, it represents the open, high, low, and close price for the stock over a given time period.

Each candlestick consists of a candle and two wicks. The length of the candle is a function of the range between the highest and lowest price during that trading day. A long candle indicates a large change in price, while a short candle indicates a small change in price. In other words, long candlestick bodies are indicative of intense buying or selling pressure, depending on the direction of the trend. At the same time, short candlesticks are indicative of little price movement.

The Evening Star pattern is considered a very strong indicator of future price declines. Its pattern forms over a period of three days, in which the first day consists of a large white candle signifying a continued rise in prices; the second day consists of a smaller candle that shows a more modest increase in price, while the third day shows a large red candle that opens at a price below the previous day and then closes near the middle of the first day.

The Evening Star pattern is considered a reliable indicator that a downward trend has begun. However, it can be difficult to discern amidst the noise of stock-price data. To help identify it reliably, traders often use price oscillators and trendlines to confirm whether an Evening Star pattern has in fact occurred.

Despite its popularity among traders, the Evening Star pattern is not the only bearish indicator. Other bearish candlestick patterns include the bearish harami, the dark cloud cover, the shooting star, and the bearish engulfing. Different traders will have their own preferences regarding what patterns to watch for when seeking to detect trend changes.

Approaches to Stock Analysis

There are two main approaches to stock analysis: fundamental and technical. Fundamental analysts rely on company performance, such as trends in sales and net income, to provide insights into the company’s future prospects. Technical analysts rely on price patterns to provide insights about the direction of stock prices.

Real World Example of an Evening Star Pattern

The following chart provides an example of the Evening Star pattern:

Evening Star

As you can see, the three days depicted begin with a long white candle that indicates prices have risen from significant buying pressure. The second day also shows a rise in prices, but the extent of the increase is modest compared to the previous day. Lastly, the third day shows a long red candle in which selling pressure has forced the price to around the midpoint of the first day.

These are the tell-tale signs that an Evening Star pattern has occurred. Technical analysts trading this security would consider selling or shorting the security in anticipation of an upcoming decline.