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Evening Star Candlestick Pattern – (Trading Strategy Analysis and Backtest | Definition & Meaning)

Last Updated on 10 February, 2024 by Trading System

Candlestick patterns are among the most used and popular chart patterns you can find today. One quite famous pattern is the evening star.

An evening star is a three candle bearish reversal pattern that forms after an uptrend, and signals that the bullish trend is coming to an end and will give room for bearish developments. As to the appearance, the first candle is bullish, the second a doji that gaps up, and the third candle gaps down and closes lower than it opened.

In this article, we’re going to cover the evening star pattern and related topics such as how to improve the pattern and trading strategies.

Let’s begin!

Evening Star Definition

Evening Star
Evening Star

As outlined in the introduction, an evening star follows a bullish trend and signals its reversal. Here are the criteria that have to be met for a pattern to become an evening star.

  1. The first candle is positive and part of the current uptrend. Preferably it’s quite tall.
  2. The second candle is a doji or doji-like candle that gaps up.
  3. The third candle gaps down, and ends up as a negative candle. Preferably, it’s around the size of the first candle.

What Does an Evening Star Tell Us About the Market?

As candlestick patterns are representations of market data, they give us some insight into how the market has acted, which is what we use when trying to predict where prices are heading.

Now, knowing why the market moved as it did, or why, is almost impossible. However, trying to figure it out is a great exercise in coming up with ideas for trading strategies and improving your understanding of the markets.

So let’s try and depict a scenario where the market formed an evening star!

As the bullish trend uncovers, most market participants are bullish and believe in the continuation of the bullish trend. As such, they’re long in the market or may decide to get in if they’re still flat.

With more capital entering the market it fuels the bullish trend, and as the market opens the following day traders and investors stand ready to buy and push the market further up. As a result, the day turns into a tall and positive candle.

Market sentiment stays strong, and the following day opens with a gap to the upside. Buying pressure once again starts to push prices higher. However, having been in an uptrend for quite some time, more and more people are becoming worried that the market has gone too far, and will revert soon.

As such selling pressure builds up and pushes the market back below the open. Now, bulls wake up again sensing that the market has become too cheap. With diminishing power they just manage to get the price back where it opened.

The indecision that’s shown in the second candle, coupled with the down gap and negative candle that follows, becomes a sign that market sentiment has shifted and become bearish.

Evening Star Candlestick Examples

Here follow two real-world examples of the evening star pattern.

Evening Star Example
Evening Star Example
Evening Star Example
Evening Star Example

Ways of Improving an Evening Star Candle

While candlestick patterns like the evening star are said to be reversal patterns, on their own they’re not accurate enough for us to act on. We need additional filters or conditions to validate the signal, and remove a lot of bad trades. In addition to this, it’s important to use the evening star with the right timeframe and market. We recommend that you use backtesting to ascertain the best markets and timeframes for the pattern.

With all this said, we wanted to share with you some of the filters and conditions we’ve used with great success in our own strategies. Let’s begin!

1. Using Overbought and Oversold Conditions

Perhaps the most popular way to trade the equity markets, is by trying to identify oversold and overbought conditions. In essence, you try to get a sense of when a market has moved so much that it will turn back soon. This is the logic behind mean reversion, which is the behavior we’re trying to catch!

With the evening star, we might choose to only take a trade if the market has entered overbought territory, meaning that it has moved excessively to the upside.

Now, oversold conditions can be defined in a number of ways, but here follow some of our favorite methods:

  1. The RSI, with a shorter length than the default (such as 5), is higher than 70.
  2. The close is above the upper Bollinger band
  3. The close is the highest close x-bars back.

One thing to keep in mind is to apply conditions like these to the second candle of the pattern and not the last. That’s because the last candle in effect is the start of the new trend, meaning that our condition might be true before it’s formed, but not after. For example, the RSI may peak at 80 on the second candle of the pattern, but then quickly turn down as the last bearish candle forms. In such cases, we would miss a lot of relevant signals!

2. Using Market Breadth Data

In addition to the price data, there are other types of data streams you might benefit from taking a look at. Market breadth or sentiment data is an often overlooked information source that could act as great filters!

In our article on market sentiment indicators, we have a closer look at some of these indicators and data streams, so be sure to check it out!

However, let’s name some of the most popular market breadth indicators, and how they work!

Advance/Decline Ratio (ADR)

The advance-decline ratio measures the number of stocks that go up during the day, and compares that measure to the number of stocks that go down.

The ADR means gives a better view of the general market mood and could help in deciding whether an evening star is worth taking or not.

Make sure to experiment and see whether a low or high ADR reading works best with your timeframe and market!

VIX-Volatility Index

The VIX index, also called the fear and greed index, measures the market’s expectation of future price moves. It does so by comparing the prices of put and call options, which vary with the market’s expectations of future price moves.

As such, you might want to consider taking an evening star only if the VIX is in an uptrend, signaling that market participants are becoming more bearish.

Here is our massive guide to VIX that covers everything you need to know about the volatility index!

3. Use Seasonality and Time-based Filters

Most markets have some form of seasonal or time-based tendencies, meaning that they are more bullish or bearish at certain times. It could be that the market is more prone to going up on certain days of the week, parts of the month, or at certain hours of the day.

Knowing these types of tendencies, which are best discovered through backtesting, will help you know when there is a higher chance that a pattern you spot will work out well.

For example, let’s say that you trade a market that tends to perform worse in the second half of the month. If then you spot an evening star around the 15th, you can be a little more certain that it will work out well.

Morning star vs Evening Star

Morning Star
Morning Star

The morning star pattern is another well-known reversal pattern, and basically it’s an inversed evening star.

However, in contrast to the evening star, it’s a bullish reversal pattern that forms after a downtrend.

Here you may read more about the morning star candlestick pattern.

Evening Star Trading Strategies

In this part of the article, we wanted to show you a couple of example trading strategies that use the evening star. While the presented trading strategies shouldn’t be seen as trade-ready systems, they provide a lot of inspiration as to how you could start building your own trading strategies. All the filters and conditions that we show you are part of trading strategies that we trade ourselves, albeit perhaps not in conjunction with the evening star!

Trading Strategy 1: Evening Star With Bollinger Bands

As we mentioned earlier, one great method to know when the market is overbought is to look at the price in relation to the upper Bollinger band. If the price is higher than the upper band, the market has overextended itself to the upside, and we can expect it to soon turn around, being typical behavior of a mean-reverting market.

However, what not that many people think of, is that the location of the upper or lower Bollinger band is dependant on volatility.

If volatility is high, the bands will be farther away, and the other way around.

As such we might want to only take an evening star above the upper Bollinger band if the ADX is over 20, which signals high volatility. Then we know that the market has moved a significant distance to the upside.

So, the rules for this example strategy become that we go short only if:

  1. We have an evening star forming above the upper Bollinger band.
  2. ADX is higher than 20

To exit a trade, we wait for the close to cross below the middle Bollinger band.

Evening Star Trading Strategy
Evening Star Trading Strategy


Evening Star Candlestick Pattern - (Trading Strategy Analysis and Backtest | Definition & Meaning)

Trading Strategy 2: Evening Star With Volume Filter

In this strategy example, we use volume in an attempt to filter out bad trades.  By demanding that the Doji is formed with more than twice the volume of the preceding bar, we assume that a volume blowoff manages to deplete the last bullish strength in the market.

So the rules for this strategy become that we go short when:

  1. There is an evening star
  2. The second candle, which is the doji, is formed with twice the volume of the preceding bar.

Then we’ll exit after 5 bars.

Evening Star Trading Strategy
Evening Star Trading Strategy

Ending Words

In this article, we’ve covered the evening star candlestick pattern. We had a look at its meaning, definition, and also covered how you could go about to improve the profitability of the pattern.

Before we end, there is one last thing we think you should know.

Be sure to TEST EVERYTHING ON HISTORICAL DATA, before you trade it live. Most technical analysis doesn’t work, and many traders will start their trading careers trading things that lead to losses.

We recommend that you have a look at our article on how to build a trading strategy, and our guide to backtesting to find out more.

Here you can find our Candlestick pattern archive with many articles covering the subject.


What is the evening star candlestick pattern?

The evening star is a three-candle bearish reversal pattern that forms after an uptrend. It consists of a bullish candle, a doji that gaps up, and a bearish candle that gaps down, indicating a potential reversal from a bullish to a bearish trend.

How can I improve the evening star candlestick pattern?

Consider using filters such as overbought and oversold conditions (RSI, Bollinger Bands), market breadth data (Advance/Decline Ratio, VIX), and seasonality/time-based filters to enhance the evening star pattern’s effectiveness.

What role does volume play in evening star patterns?

Volume can be a crucial factor. For example, the article suggests using volume to filter trades by demanding that the doji in the evening star pattern is formed with more than twice the volume of the preceding bar.

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