Investor Education Story

The evening star candlestick patter is a pattern that technical traders and investors recognize as a potential bearish reversal. As with all patterns, they are not one hundred percent certain, but rather give you the investor an opprotunity to be alert for the potential move.

Updated over a year ago
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This patter is formulated with there is an bullish bar that is large in body, followed by a much smaller candle is above the previous bar, indicating that the trend may be slowing or reversing. Lastly, the third candle opens below the body of the second one and is a bearish candle, which could confirm a trend change.

Using this pattern is for a bullish trend being signaled for potential reverse. Some of the other types of indicators you can use with this is a momentum indicator, Bollinger Bands, or even standard deviation. When you are a looking at the third candle of the pattern, you have to keep in mind that the body needs to be large indicating that price is falling and there are not supports within that candle.

Spotting candlestick patterns can be a difficult agenda to tackle, but doing so can help to give you more awareness of the current market conditions.  Elaborating on the candles, the first candle of the three candle pattern indicates that the market still has momentum to the upside and there still are buyers in the market. The second candle indicates that the buying has slowed dramatically and that there is not enough power to push the price higher, depending on volume. The body is also small which is indicating the price range is tight. With the last candle being large, this means that the market has pushed price lower with minimal resistance and depending upon volume, that could mean buyers have left the market.

Be sure to test these patterns out on a demo account first and see if you can get a hold of how they work before risking your hard earned dollars. If you still have questions after the fact, reach out to an investing professional and they can help to point you in the right direction. Also, join an investing community as this well allow you to bounce questions off of people who are in the markets at real time.

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