The Evening Star pattern is a set of three candlesticks that many traders consider to be a “topping” signal, meaning that it’s time to cash out before the stock turns down.
The evening star is a strong indicator that a downward trend has started. The pattern typically forms over three days.
On the first day, you will be able to see a large white candle indicative of sustained price rise; this will be followed by a smaller candle that shows a relatively smaller price rise.
The third day will be a large red candle that opens at a price below the second day and then ends near the middle of the first day.
Candlestick charts are terrific trading tools because they provide so much more information than a simple line chart.
Each candlestick tells you four pieces of information:
The Evening Star isn’t a common pattern, so its appearance should be taken with appropriate concern.
However, remember that the appearance of a single pattern or indicator isn’t a slam dunk buy or sell signal.