Understanding the Evening Star

What is the Evening Star?

The Evening Star is a bearish reversal candlestick pattern that indicates a potential reversal of an uptrend. It consists of three distinct candles:

1. A long bullish candlestick.
2. A small-bodied candlestick (could be a Doji or a spinning top) that gaps up from the first candle.
3. A long bearish candlestick that closes below the midpoint of the first candle.

How is the Evening Star Identified?

The Evening Star pattern is identified by:

1. First Candle: A long bullish candlestick showing strong buying pressure.
2. Second Candle: A small-bodied candle (Doji or spinning top) that gaps up, indicating indecision.
3. Third Candle: A long bearish candlestick that closes below the midpoint of the first candle, confirming the reversal.

When to Use the Evening Star

The Evening Star pattern is used to:

• Spot Reversals: Look for this pattern at the top of an uptrend to signal a potential bearish reversal.
• Confirm Signals: Use additional indicators or confirmation candles to validate the bearish reversal.

Formula Example

To identify the Evening Star:

1. Identify the First Candle:
   • Condition: A long bullish candlestick.
2. Check for the Small-Bodied Candle:
   • Condition: A small-bodied candle (Doji or spinning top) that gaps up from the first candle.
3. Assess the Third Candle:
   • Condition: The third candle should be bearish and close below the midpoint of the first bullish candle.

For example:

• First Candle (Bullish): Open = 100, Close = 110
• Second Candle (Small Body): Open = 111, Close = 110
• Third Candle (Bearish): Open = 110, Close = 105
• Condition Met: The Evening Star pattern is confirmed when the third candle closes below the midpoint of the first candle.

Parameters

The parameters for identifying the Evening Star pattern include:

• Data: Defines the type of data to use for the pattern.

  • Value: ohlc
  • Description: The pattern uses Open, High, Low, and Close prices.

• Previous N Candles: Number of preceding candles to check.

  • Default Value: 1
  • Min Value: 1
  • Max Value: 300
  • Description: Checks for the Evening Star pattern in the last N candles.

Conclusion

The Evening Star candlestick pattern is a significant indicator of a potential bearish reversal in an uptrend. It is crucial to use it in conjunction with other technical indicators and confirmation tools to ensure the reliability of the reversal signal.