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Trading the Bearish Evening Star

Trading the Bearish Evening Star

2013-08-23 19:00:00
Walker England, Forex Trading Instructor

Article Summary: Finding reversals of momentum may prove difficult for Forex traders. Today we will review price action tips using the Bullish Morning Star candle pattern.

Understanding and interpreting candle patterns, is an important skill to master for Forex price action traders. While these patterns may seem foreign at first, their recognition can help aid in finding trend reversals and continuations. That is why, with a little practice you can work candle analysis into any active trading strategy. With this idea in mind, we will again continue this month’s focus on recognizing and trading easiest identifiable candle stick patterns. Today we will review the bearish evening star.

Trading_the_Bearish_Evening_Star_body_Picture_2.png, Trading the Bearish Evening Star

What is a bearish evening star?

A bearish evening star is similar to our previously discussed morning star pattern. These patterns are inverse from each other, with the bearish evening star normally found at the end of a period of bullish market pressure. Pictured above we can see the pattern itself which is alsocomprised of three completed candles. The first candle will depict a surge in priceon the underlying currency pair. The size of this first candle can vary, but it is important for this candle to close creating a higher high.

Next traders will look at the second candle of the pattern to identify a bearish evening star. Price should attempt to again breakout out to the upside here and create a slightly higher high relative to our first candle. However, any rallies seen in this position should be capped with a long candle wick with price trading back down toward the open price for the day. More often than not, a doji or inverted hammer can be seen in this position but the candle color is ultimately not important. This doji or long wick from an inverted hammer suggests that bullish price momentum is concluding .The last candle should show the beginning of fresh bearish momentum.

Learn Forex – USDCHF with Bearish Morning Star

Trading_the_Bearish_Evening_Star_body_Picture_1.png, Trading the Bearish Evening Star

(Created using FXCM’s Marketscope 2.0 charts)

Uses in Trading

Once you are feel comfortable find the bearish evening star candle pattern, it can then readily be applied into virtually any trading strategy. Above is a great example of the pattern at work on a daily USDCHF chart in the confines of a downtrend. The USDCHF is seen retracing from the formation of a lower high, ending in the highlighted morning star. After the completion of the third candle in the pattern, traders can reasonably assume the trend has turned back to its primary direction while looking for fresh opportunities to sell the USDCHF.

As you can see candle patterns are a great way to interpret price action. However, keep in mind reversal patterns may symbolize a change of direction but not necessarily suggest a complete trend reversal. Traders should keep an eye on the wick of the second candle of the Evening Star pattern. In the event this point is exceeded, it can denote future trend shift for a currency pair.

---Written by Walker England, Trading Instructor

To contact Walker, email instructor@dailyfx.com. Follow me on Twitter at @WEnglandFX.

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