Charting the Markets: Evening & Morning Star

If you wish to step up your trading game and begin using reverse candlestick patterns to make better trades, you’ve come to the right place. In our last article, we discussed the Engulfing patterns — why they occur, how a trader can spot them, and what market trends they precede. But, to understand reverse candle stick patterns, it is also important to understand candlestick charts in general: 

Candlestick charts offer detailed information about price movements within a particular time frame, including the opening, closing, high, and low prices. Each "candlestick" consists of a body (the range between the open and close) and wicks (shadows) that extend to high and low prices. Green (or white) candles indicate prices closed higher than they opened, while red (or black) candles show prices closed lower than they opened. 

The Evening & Morning Star are the last reverse candlestick patterns we will take a look at, and they’re also one of the most popular and widely recognized patterns. Having encountered them on a daily basis, traders and investors are more than familiar with them. Here are the criteria that will help you spot them and distinguish between them.

1. Evening Star

The first candlestick of this pattern is always bullish and has substantial length. The second candle can be both bullish and bearish and is significantly smaller. The third candle is always bearish, and it points towards the fact that the sellers are gaining traction. The third candle usually closes above the point where the first candle opens, but it is not unusual for the third candle to be larger than the first one. This is the reason why some people refer to this candle as a so-called “magnet.” Generally, the larger the first and third candles are, the higher the chances of a trend shift. The gap between the first and second candles is also important, as it substantiates the probability of the trend shift. Lastly, if there’s a gap between the first and second candles and between the second and third candles, this is usually a very strong indicator of a trend shift. In this case, we call this pattern the “Optimal Evening Star.”

2. Morning Star

The first candlestick of this pattern is always bearish and has substantial length. The second candle can be both bullish and bearish and is significantly smaller. The third candle is always bullish, and it points towards the fact that the buyers are gaining traction. The third candle usually closes below the point where the first candle opens, but it is not unusual for the third candle to be larger than the first one. Generally, the larger the first and third candles are, the higher the chances of a trend shift. The gap between the first and second candles is also important, as it substantiates the probability of the trend shift. Lastly, if there’s a gap between the first and second candles and between the second and third candles, this is usually a very strong indicator of a trend shift. In this case, we call this pattern the “Optimal Morning Star.”

3. Morning & Evening Doji Star

In addition to these two patterns, there are also doji versions of both of them. Since we’ve already discussed the general properties of Doji patterns, you can probably already imagine what the Doji versions look like. The only difference is the second (middle) candlestick, which has no body. However, in practice, the Doji version indicates the same sentiment as the regular Morning & Evening Stars.

Here is an actual example of these patterns occurring in a realistic situation:

Hopefully, this article has helped you recognize and work with the Evening & Morning Star candlestick patterns. Keep your eyes peeled for our next article, where we will move to continuation candlestick patterns, which will reinforce your trading arsenal even further.