What it means
Candlestick charts show the opening, closing, high and low prices for each period, such as a day, using a rectangle called the body and thin lines called shadows. A rising candle closes higher than it opened, and a falling candle closes lower.
Traders look for patterns of several candles that suggest a change in mood among buyers and sellers. The Evening Star has three parts, starting with a long rising candle that shows strong buying.
Next comes a small candle, often with a tiny body, that opens above the first candle's close and shows hesitation. Finally, a long falling candle appears and closes well into the body of the first candle, which suggests that sellers have taken control.
The pattern gets its name because the small middle candle looks like a star appearing at dusk, and darkness follows. The opposite pattern, which signals a possible move up after a fall, is called the Morning Star.
Both depend on the idea that market sentiment shifts gradually before price direction changes. The pattern works best after a clear upward trend.
If it appears in a sideways market, it is less meaningful. Many traders also look for high trading volume on the third candle, which adds weight to the signal.
It is important to be realistic about what the pattern offers. It is a probability, not a certainty, and many Evening Stars are followed by further gains.
Traders therefore combine it with other tools, such as support levels and moving averages, and set stop-loss orders (instructions to close a position automatically if the price moves against it by a set amount) to limit losses. Non-specialists meet this term when reading market commentary or talking to colleagues who trade.
A business leader does not need to trade on it, but understanding the language helps in discussions about market sentiment. It is no substitute for analysis of a company's finances.
In practice
Real-world examples.
Example
A trader in New York watches a technology share rise for two weeks. She sees an Evening Star form near the highest price and sells half of her holding.
Example
A currency analyst in London notices the pattern on a chart of the euro against the dollar. She tells her team that the trend may be weakening, and they delay a planned euro purchase.
Example
A retail investor in Sydney sees the pattern after a long rally in a mining share. He decides to place a stop-loss order a little below the third candle's close to limit his possible loss.
Formula
Calculation
Confirmation test: the third candle's close must be below the midpoint of the first candle's body, where midpoint = (open of candle 1 + close of candle 1) / 2
Worked example: a share is in an uptrend. On day 1 it opens at $100 and closes at $110. On day 2 it opens at $111 and closes at $112, a small body above the first close. On day 3 it opens at $111 and closes at $102.
Step 1: Midpoint of day 1 body = ($100 + $110) / 2 = $105.
Step 2: Day 3 close = $102, which is below $105.
Step 3: The test is met, so the three days form an Evening Star.
By closing at $102, day 3 gives back $8 of the $10 that day 1 gained, which is 80% of it. Traders might then consider reducing exposure.Case study
Seen in the real world.
Northwind Capital is a fictional trading firm that tested whether chart patterns improved its decisions. One analyst tracked every Evening Star on a group of 50 shares over a year and compared the results with random entry points.
The pattern was followed by a fall in about half of the cases, and the average gain on shorting after it was small once costs were counted. The firm concluded that the signal helped only when combined with other evidence, such as falling momentum.
In this illustrative case, the firm kept the pattern as one input among several and wrote a rule that no trade should rely on a candlestick pattern alone. The test also reminded the team to record fees, because small edges can disappear after costs.
Watch out
Common mistakes.
- Treating the pattern as a guarantee of a price fall, when it only suggests a higher chance of one.
- Using it in a sideways market, where reversal patterns have little meaning.
- Ignoring trading costs and stop-loss levels when acting on the signal.
Questions
People also ask.
What is the opposite of an Evening Star?
The Morning Star, which signals a possible move upward after a downtrend.
Why is the middle candle small?
It shows hesitation, with buyers and sellers about equally matched, which often comes before a change in direction.
Does the pattern work on any time frame?
It can appear on daily, weekly or intraday charts, though signals on longer time frames are usually seen as more reliable.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related