The “evening star” is the small-bodied middle
candle of a 3-bar pattern that can provide an early indication of a reversal
from a bullish to a bearish trend, typically with an opening price at or a gap
above the close of the previous candle (a gap indicates space between the body
of the previous candle and the open of the consequent candle). The pattern
represents a potential top, and therefore a potential signal to sell. These are
the characteristics of the three candles:
1. A long bullish candle
2. A small-bodied bullish or bearish candle or a
doji that opens at or above the close of the previous candle.
3. A black candle that opens at or below the low
point of the previous candle’s body and closes at or below the center of the
first candle.
In order for the pattern to be valid, the
sequence of candles must be as described above. Moreover, the pattern should
appear in the context of an uptrend in order to signal a reversal and the start
of a downtrend.
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