Definition - Signaling a top reversal, this pattern consists of three candlesticks. To start, a white candlestick appears followed by a short candlestick that gaps up to then form a star. On the third day, a black candlestick is observed and closes well into the body of the first white candlestick which completes the meaningful top pattern.
- On the first day, a white candlestick is observed within a market that is experiencing a prevailing uptrend.
- On the second day, a short candlestick appears that boasts a gap in the direction of the uptrend.
- Finally, a black candlestick will then form on the third day.
Patterns and Flexibility
After starting with a white candlestick, the Bullish Evening Star then follows with a short candlestick that can be of either colour (the main feature is that it gaps up). On the third day, the market opens lower than the highest body of the second day and then goes on to close well into the very first candlestick. Often, the extent to which the close finishes low will depend on what has happened in the previous two candlesticks. Also, it is important to note that the close of day three must finish in the midpoint between day one’s open and day two’s highest body level.
Behaviour of Trader
During an uptrend, the white candlestick forms and this suggests that the trend will continue. On the second day, it appears as though the bulls are still pushing the price up after the short candlestick is observed. However, there is very little price action and the small gap between open and close suggests a little indecision. On the third day, the trend reversal will occur once the black body moves inside the body from the first day.
Sell/Stop Loss Levels
For there to be confirmation, the prices will have to cross below the level of the last close. Furthermore, the stop loss level will be considered as the higher of the previous two highs. If the prices go up following the bearish signal, the stop loss will be triggered following two days of highs above the stop loss level if there is no bullish pattern detected.