Trading crypto using the Evening Star pattern
The Evening Star candlestick pattern is a three-candle bearish reversal formation that appears at the top of a bullish trend. It signals that the market is slowing down and that a bearish move is laying the foundation for a new trend.
Identifying an Evening Star
Evening Star pattern has been extremely popular in forex trading, but has increased in popularity in other markets, crypto included. Using this pattern when trading cryptocurrencies has proven to be extremely lucrative if done properly. Identifying the Evening Star on crypto charts involves more than just identifying the three main candles that constitute this pattern. While the Evening Star is just a three-candle pattern, one needs to understand the previous price action before trading it.
The market should be exhibiting higher highs as well as higher lows. The large bullish candle occurs as a result of large buying pressure as well as a continuation of the existing uptrend. Traders should be looking only for long trades at this point, as there is no evidence for any type of reversal yet.
The second candle is a small candle (sometimes even a Doji candle) that is the first sign of trend fatigue. This candle often gaps higher as it makes another higher high. It doesn’t matter if the candle ends up being bearish or bullish, as this candle only shows a lack of determination.
The first real sign of a trend reversal and big selling pressure is the big red candle.
After a successful reversal, we will be able to observe lower highs as well as lower lows.
Trading the Evening Star pattern
The chart shows an established uptrend that leads up to the formation of the Evening Star reversal pattern. Once the pattern formation has completed, traders are looking for an entry point at the open of the next candle. If traders are more conservative, they could delay their entry point to a slightly lower price.
Targets should be placed at previous support levels of consolidation levels. Stops, on the other hand, can be placed right above the recent swing high.
Evening Star pattern reliability
The Evening Star, like every other candlestick pattern, should be traded along with other trading tools available to the trader. While they are quite reliable, failed reversals can happen if a trader only uses the Evening Star pattern to trade.