This information can be an indicator of what will happen the next day. This indecision candlestick pattern helps the traders to give a red flag and thus prevent further buying. Luckily, there are charting platforms evening star doji that automate this process for you these days. For example, TrendSpider has a great candlestick recognition feature that has the ability to display more than 200 candlestick patterns on any chart.
- It has a long bullish candlestick, a doji candlestick, and a long bearish candlestick signaling a potential reversal in the uptrend.
- Additionally, take a look at the previous candles; many times you will see overhead shadows on those candles as well.
- In this article, I will explain the intricacies of this pattern and how to spot it in practice.
- Another closely related candle pattern to the evening star is the evening doji star.
- It is hence advised to learn properly about it before utilizing it for your trades.
- The key to its secret is the fact that candlesticks are a visual representation of price action.
The different Doji candlestick patterns work differently even though they have the commonality of having a doji. It is hence advised to learn properly about it before utilizing it for your trades. The Evening Star Doji candlestick pattern does not occur very often, making it rare. It is a strong signal that traders should pay attention to when it does occur.
It is also easier to identify the entry and exit points as the bull, and the bear run can be easily seen on the charts. This may result in a loss of opportunity because the patterns are not always exact, and there can be small deviations. In the graph provided of Bitcoin, long elongated candles start at somewhere near the $31,000 region.
How an Evening Star Works
The long bullish candlestick at the start of the pattern reflects the last gasp of the buying pressure, while the doji signals that the buyers’ hold on the market is slipping. Traders and investors use the bearish doji star pattern as a signal to sell their long positions or enter short positions in anticipation of a downtrend. The name suggests doom and gloom, but going heavily bearish will cost you dearly. But before we get into the optimal evening doji star trading strategy, let’s learn how to identify this three-bar pattern on our candlestick charts. Traders in the stock market who want to trade using the Evening Star Doji candlestick pattern should look for a green candlestick, followed by a Doji, and then a red candlestick.
Importantly, the second candle is a doji pattern, where the open and close price are practically at the same level. Ideally, the real body of the shooting star should gap away from the previous candles’ real body. While it is not necessary, it adds confirmation to the validity of the impending reversal. There was high volume that came along with the hammer, and this was an even bigger sign that this level would hold as support. The following day, the stock accelerated with a gap higher and closed well into the top half of the first bar.
What are the advantages of the Evening Star Doji Candlestick Pattern?
A closely related candlestick formation to the evening doji star is simply the evening star pattern. To confirm a trend reversal in technical analysis, candlestick patterns work best. In trading, to make a perfect strategy, you always must add confluences to increase the winning probability. After Doji candlestick, a significant bearish candlestick will form breaching through the levels made by buyers. This candlestick will close below the 50% level of the bullish candlestick.
What are the disadvantages of Evening Star Doji Candlestick Pattern?
Therefore, if you initiate trade after confirmation of this pattern, there are strong chances that you will be able to gain profit. So, let’s see the top three trading strategies to use when identifying the Doji evening star pattern. A candlestick pattern is a way of presenting certain information about a stock. It represents the open, high, low, and close price for the stock over a period of time. The pattern, as every other candlestick pattern, should be confirmed on the next candles by breaking out of the support zone or a trendline.
Supporting documentation for any claims, comparison, statistics, or other technical data will be supplied upon request. TD Ameritrade does not make recommendations or determine the suitability of any security, strategy or course of action for you through your use of our trading tools. Any investment decision you make in your self-directed account is solely your responsibility. Note, I used MetaStock’s candlestick recognition screener to detect these stocks, however TrendSpider is arguably better.
The morning Star pattern is the opposite of the Evening Star which indicates a bullish reversal. By comparing two different SMAs, the ‘SMA50, SMA200’ option only detects stronger trends. When the trend is weak and the condition above is not met, no patterns will be detected.
The Doji Evening Star Candlestick Chart Pattern – Pros and Cons
Likewise, because the stock is so extended, short sellers will be initiating their positions as well, adding more supply to the stock. This is particularly important for psychological reasons which we’ll get into in a moment. But for now, suffice it to say that stars usually open and close very tightly. In the example below, you can see how the trading volume slightly rises above the average, suggesting that the trend is about to change. In this blog, we will understand the formation of the Evening Star pattern and will also explain how to trade it properly.
Another extremely powerful version of the doji star is the abandon baby top or abandon baby bottom. This pattern is the equivalent to what some know as the island reversal. The lack of direction is a potent reversal signal, especially if it is followed by a candle in the anticipated direction, and at the end of a trend. Even if one had waited for the high of the third candle in morning star to be broken above, five points could have been made in that short amount of time. The major difference with this pattern is the third candle in the formation.
In our example, we can see that the prices decrease to below $31,000 and then pick up again. At this level, the profit should be realized by exiting the trade. Around the 5th of January, we see a bullish pattern establishing itself, continuing till the 8th of January. Keep in mind all these informations are for educational purposes only and are NOT financial advice. Along those lines, it is telling us that the market’s rally could not be sustained. The market opened at or near its lows, shot up much higher and then reversed to close near the open.
