Evening Star
Key Takeaways
- 01.A three-candle top reversal pattern.
- 02.Candle 1: Long bullish; Candle 2: Small body gapping up; Candle 3: Long bearish closing deep inside Candle 1.
- 03.Indicates transition from buying climax (Candle 1) to exhaustion (Candle 2) to seller dominance (Candle 3).
- 04.Higher reliability if the third candle is accompanied by high volume.
Why it matters
It acts as a warning that the buyers have run out of gas and sellers are starting to liquidate positions. Because it takes three sessions to form, it is highly reliable for identifying intermediate tops.
When it matters
It matters most at major resistance zones, swing highs, or when oscillator indicators are deeply overbought.
Three candles: a long green candle, a small-bodied upper candle, and a long red candle closing low.
Trace the three-candle sequence on the chart and look for verification in volume trends.
Common Mistakes
Trading before the third candle closes
Entering short on the second day (the star) is premature, as the market can easily gap higher on the third day and continue the uptrend.
📖 Real-World Example: A cyclical market peak
In late 2021, a leading electric vehicle manufacturer reached $1,200 (long green). The next day, it printed a high-floating Doji on low volume (the star). The third day, a massive institutional sale drove price down 6%, closing 70% into the green candle, initiating a 30% decline.