Among the imaginatively named candlestick formations is the evening star. This three-session pattern and its closely associated doji star are both very bearish reversal indicators and worth looking for as signals that an existing uptrend is about to end.
Several attributes of these patterns explain their strong reliability. The first session of the evening star is an upward-moving day (white candlestick). This is followed by an all-important price gap. The second day is downward-moving (black candlestick). The gap, by the way, is larger than the visible space between the ranges of the two days. It extends from the top of the white session all the way to the top (opening price) of the second day's black session. Thus, the bigger this overall gap, the stronger the reversal likelihood.
The final important attribute is found in the third day, which firmly establishes the reversal. This session fills the gap between sessions one and two. This makes it most likely that a downtrend is going to follow.
The doji star is the same as the evening star, with an important distinction. In the doji star, the second session is a doji, a session whose opening and closing price are the same or very close. Thus, the real body is only a horizontal line, so the pattern looks like a cross. Note that in this variety, there are two gaps. First is the gap from the top of the first session to the doji line. Second is the doji line of that second session to the top of the third, black session.
The third session still fills the gap between sessions one and two, but the doji is a key variation. Doji patterns often indicate a struggle between buyers and sellers, especially if long upper and lower shadows are found as well. This tells you that both buyers and sellers tried to move the price away from the opening, but both failed. There is no momentum left.
Because the preceding pattern was an uptrend, the loss of momentum is blamed on the bulls; and because the ensuing black session fills the gap and moves downward, it strongly hints at a downward trend beginning.
Both the evening star and doji star was strong and compelling. In fact, although all reversal patterns can fail, both of these have a better than average historical reversal track record. They do lead to actual reversal over 70% of the time. So when you spot either of these at the top of an uptrend, pay attention. They usually are correct.
The likelihood of actual reversal is even greater when these patterns appear at or close to resistance. Tests of resistance that fail are most likely to lead to a strong downtrend. It is especially strong if the second session gaps up above resistance and then price retreats not only to fill the gap, but to also return to below resistance. This is the ultimate in lost momentum, and a downtrend will usually occur right away.
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