{"id":654405,"date":"2025-04-18T12:00:00","date_gmt":"2025-04-18T10:00:00","guid":{"rendered":"https:\/\/ftmo.com\/?p=654405"},"modified":"2025-04-18T12:03:45","modified_gmt":"2025-04-18T10:03:45","slug":"trading-strategy-using-the-evening-star-pattern","status":"publish","type":"post","link":"https:\/\/ftmo.com\/en\/trading-strategy-using-the-evening-star-pattern\/","title":{"rendered":"Trading strategy using the Evening Star Pattern"},"content":{"rendered":"
The Evening Star pattern, like the Morning Star pattern, is popular among traders due to its ability to identify relatively reliably a change in sentiment from bearish to falling bullish. The “evening star” thus symbolises the end of the day (upward trend) and the arrival of the night (downward trend).<\/em><\/p>\n Evening Star is a formation consisting of three candles, which can be identified by the following rules:<\/p>\n Together, this creates a reversal pattern, which can often be found at the end of an uptrend<\/strong>, where the market is in danger of not being able to handle another big rise and a decline may occur.<\/p>\n We can use moving averages (e.g. SMA50 and SMA100), trend lines, or we can just look at the chart (a series of higher lows and higher highs) to identify the trend. We usually look for the Evening Star at the end of such an uptrend.<\/p>\n A pattern can form at an important price level:<\/p>\n The formation of an Evening Star Pattern at such resistance is a strong signal of a potential reversal.<\/p>\n Entry (sell) usually takes place after the close of the third candle.<\/strong> A more conservative approach<\/strong> means waiting until the price gets below the low of the third (falling) candle. A more aggressive approach<\/strong> allows you to open a trade right after the close of the third candle.<\/p>\n Stop Loss can be placed above the high of the second or third candle, i.e. the candle with the highest high of the whole formation. It is a good idea to enter the stop loss with a small margin (e.g. a few pips in forex, ideally according to the backtest results) so that market noise does not cause unnecessary exit from the position in case the SL is too tight.<\/p>\n We can set a target price according to different rules, for example:<\/p>\n As the price gets closer to the target, we can move the Stop Loss into profit (called a trailing stop) and thus protect the profit already made.<\/p>\n We found an example of a good entry based on the Evening Star pattern on the EURUSD pair at the end of January, when the euro strengthened significantly against the dollar since mid-January. By the end of January, however, speculators were running out of steam on the euro’s rise. The price finally reached the resistance that had already formed on the pair in December of the previous year, and there was an exemplary bounce and trend reversal.<\/p>\n At the same time, a nice Evening star pattern formed, in which the middle candle has a small body but quite prominent wicks. However, this may not be a bad thing, the main two candles are before and after the given small candle in the middle of the pattern.<\/p>\n We opened the short below the third candle, at 1.05050. We set the Stop Loss above the high of the middle candle, at 1.05350, which is an acceptable 30 pips. Conservative traders can set the SL above the upper resistance level, i.e. at 1.05400, which would give an SL of 35 pips.<\/p>\nWhat does the Evening Star look like?<\/h2>\n
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How to trade the strategy?<\/h2>\n
Identifying an uptrend<\/h3>\n
Finding an Evening Star patterning at a strong resistance level<\/h3>\n
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Trade entry<\/h3>\n
Stop Loss (SL)<\/h3>\n
Take Profit (TP)<\/h3>\n
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Example of a trade<\/h2>\n