The evening star pattern is exactly the opposite of the morning star pattern, and such, it is a reversal pattern indicating a possible top it is formed. It is being formed out of three candles, with the first candle having a strong green body, showing bulls are in control, followed by the second candle in the form of a candle with a small real body, red or green, it doesn’t really matter the color for this candle, and a third candle with a strong red real body, ideally going with a small gap from the end of the second candle and penetrating substantially into the first candle’s real body territory. However, such a gap is rarely seen, especially on the currency markets and as a matter of fact it does not influence the validity of the pattern at all.
According to Steve Nison’s book cited earlier in this chapter, there are some factors increasing the likelihood that an evening star (or a morning star I would add) would be a reversal, and those are:
- if there is no overlap among the first, second, and third real bodies;
- if the third candle closes deeply into the first candle’s real body;
- if there is light volume on the first candle session and heavy volume on the third candle session. This would show previous trend ended and a new one began or is about to begin. However, based on my experience, this volume thing on the currency markets does not really work because the volume that you are seeing as being displayed by your broker is the volume of that broker only, and it is not relevant for the entire market as a whole.
The highs of the evening star are now the resistance for any bullish attempt from the moment the patterns formed.