BEARISH EVENING STAR
Definition
This is a three-candlestick formation indicating a significant top reversal. It consists of a white candlestick followed by a small candlestick, which typically gaps up to form a star. The third candlestick is black and closes well within the bullish candlestick’s real body from the first session. This is a notable reversal pattern.
Recognition Criteria
1. The market is currently defined by a dominant upward trend.
2. We see a white candlestick on the first day.
3. Then, we see a short candlestick on the second day that gaps in the direction of the uptrend.
4. A black candlestick is observed on the third day.
Pattern Requirements and Flexibility
The Bearish Evening Star pattern begins with a white candlestick, followed by a short candlestick (white or black) that opens with a gap up. On the third day, a black candlestick appears, opening at or below the highest level of the second candlestick’s body and closing well within the bullish candlestick from the first day. The degree, to which the third candlestick must close lower, is determined by the other candlesticks in the pattern. The third day’s closing should reach the midpoint between the first day’s opening and the second day’s highest body level.
Trader’s Behavior
An uptrend is being observed, and the white candlestick confirms the continuation of the uptrend. The appearance of the short candlestick that makes a gap indicates that bulls are still pushing up the price. However, the tight price action on the second day between the open and the close shows indecision. The third day is a black body that moves into the first day’s white body. A significant trend reversal has occurred.
Sell/Stop-Loss Levels
The confirmation level is determined by the last close. For confirmation, prices should fall below this level.
The stop-loss level is defined as the higher of the last two highs. Following the bearish signal, if prices rise instead of falling and either close above or make two consecutive daily highs above the stop-loss level, without detecting any bullish pattern, the stop-loss is triggered.