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Comprehensive Guide to Trading the Evening Star Pattern on eToro

In the field of trading, preparation is always an essential factor in order to succeed. Part of the preparations one trader should do is to equip himself with the knowledge regarding the specific asset, the market as a whole, a good experience in actual trading, and good familiarity with candlestick patterns.Candlestick patterns play an important role in estimating the possible direction of the market. there are more than a dozen candlestick patterns commonly used by experienced traders and these patterns can prove to be very effective when used and interpreted accordingly. Among the most popular candlestick patterns include the Evening Star pattern. So, what is an Evening Star Pattern, and how to implement it on an actual trade on eToro?

(NOTE: Before we continue, we have to give a disclaimer that the trading products offered by the companies listed on this website carry a high level of risk and can result in the loss of all your funds. CFDs are complicated instruments that are never guaranteed to provide you supplemental earnings.  In fact, Around 68% of all retail investors experienced a loss while trading CFDs. Make sure to keep this in mind before attempting to use the eToro platform yourself. All the information found on this website is not official trading advice and all practices shown are referenced for the use of the Demo account only.)


 

Contents

  • 1 What is an Evening Star Pattern?
  • 2 How to Implement the Evening Star Pattern on Actual Trade
  • 3 What we Think of the Evening Star Pattern

What is an Evening Star Pattern?

Evening Star Pattern

The Evening Star Pattern is classified as a reversal pattern where it signals a change in the direction of a market – from a bullish trend, the market moves to a bearish trend. In other words, it is a bearish candlestick pattern that tells that the price is about to drop. Knowing this candlestick pattern will give a hint or warning that it is time to sell or secure positions to avoid possible loss.

The Evening Star pattern takes form at the end of a bullish trend but can also form within swings. It is composed of three candles – the first candle being bullish with a long body and short tails, followed by a second candle usually in the form of Doji or Spinning top pattern which has a thin body and varying tail lengths, and the third candle is a bearish candle with a long body and short tails.

Evening Start Candlestick Pattern

Most of the time, gaps are also involved between the candles which denote buying and selling strength however, gaps are not a necessity for this pattern formation. The closing and opening prices of the first and third candles should not be much higher than the body of the second candle (as we can see from the image). Also, the most important factor to consider with regards to the physical traits of the candles is that the first and third candles should have a much bigger size compared to the second candle. Also, the bodies of the first and third candles should be much bigger than the tails.

This pattern forms when the strong pressure of buyers (indicated by the first candle) begins to have second thoughts of investing further (indicated by the second candle). After there is not much price movement (still indicated by the second candle), position holders start to sell (as indicated by the third candle) to avoid possible price drops caused by the slowing momentum of buyers.

This pattern is used greatly by many experienced traders because of its increased accuracy compared to other reversal patterns. Traders believe that it is a more dependable pattern for reversal since it makes use of three candles to affirm the movement of the market. the second candle which is usually a Doji or a Spinning Top pattern is on its own already a sign of reversal, however, having a third candle as a confirmation further improves the accuracy of the pattern.

How to Implement the Evening Star Pattern on Actual Trade

Just like other candlestick patterns, implementing the Evening Star pattern in an actual trade can be quite tricky and requires due diligence. Whenever dealing with chart patterns, we should not just consider their physical traits but also all other elements involved such as range, trend lines, range, buying and selling pressure, use of indicators, company disclosures, and many others.

As an example, let us use this chart from TESLA.

On this chart, we’ve used the daily range to detect the occurrence of the Evening Star pattern. This particular example shows two instances of the pattern which occurred between swings.

TESLA Evening Start Pattern

The first candles show the strength of the buyers (particularly the first formation), followed by a Doji or a spinning top pattern for the second candle, and a long bearish candle for the third. After each formation, the market dropped to a certain degree before reversing again. It is also noticeable that the bodies of the first and third candles are much longer or bigger than the second candle, and the candles have much smaller tails compared to the second candle.

Another example is for the asset – LTC, which is in the industry of cryptocurrency.

This particular example also shows that the pattern transpired after a swing, and the range was on an hourly range. While all the criteria for identifying an Evening Star pattern on this example have been fulfilled, we can also incorporate the use of another chart pattern with the Evening Star Pattern. For this case, we can combine the Double Top pattern with the Evening Star Pattern.

LTC Evening Start Pattern

There are two peaks in this example and each peak creates a trend line that serves as a common resistance. As we’ve learned previously from our other articles about the Double Top Pattern, when two peaks touch a common level of resistance, the market is assumed to reverse toward a downtrend.

Having to combine the analysis of an Evening Star Pattern with other patterns, more reliable and more accurate assumptions are met.

What we Think of the Evening Star Pattern

The Evening Star Pattern is indeed among the most reliable and easy-to-use candlestick patterns for trend reversals. Compared to other candlestick patterns, it is much more accurate since it makes use of three candles – with its last candle serving more like a confirmation of the reversal.

The pattern likewise can be made more effective when combined with other chart patterns, and with the use of other indicators as well as trend lines, making sound decisions is possible.

This pattern is what many traders consider as a “giveaway” when executing decisions to sell because of its obvious or clear sign of reversal towards a bearish market or trend.

Now that you have full knowledge of the Evening Star Pattern, it is time to practice with it on the actual market. eToro comes with a virtual trading portfolio that enables you to trade on the actual market without having to spend anything. Virtual portfolios use virtual money to trade on the market. with this, you’ll be able to master reversal patterns such as the Evening Star Pattern in no time!

Good luck!


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eToro is a multi-asset platform that offers both investing in stocks and crypto assets, as well as trading CFDs.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.

Copy trading is a portfolio management service, provided by eToro (Europe) Ltd., which is authorized and regulated by the Cyprus Securities and Exchange Commission.

Cryptoasset investing is unregulated in some EU countries and the UK. No consumer protection. Your capital is at risk.

eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity-specific information about eToro.

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RISK WARNING

68% of retail investor accounts lose money when trading CFDs. 

eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Past performance is not an indication of future results.

eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.

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68% of retail investor accounts lose money when trading CFDs.
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