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The Evening Star Candlestick Formation

Now that you know the morning star candlestick pattern, it’s time to learn the evening star. The evening star is simply an “upside-down morning star.”  If you can reverse the logic, you’ll immediately understand how an evening star works.
The partner of the morning star is the evening star, which forms at the end of an uptrend (it’s the top), potentially signaling a reversal into a downtrend.

An evening star formation, which includes three or more candles, is characterized by a larger bullish candle, followed by a small-bodied bullish or bearish candle (a spinning top or a doji), followed by a larger bearish candle.

In order to qualify as an evening star formation, the third bearish candle must close at 60% or more of the original bullish candle’s opening (counting the top of the middle candle as 0 and the opening price of the original bullish candle as 1).

As you can see in the image below, an evening star formation can consist of more than three candles.

The defining characteristics are the initial larger bullish candle and a final larger bearish candle that closes at 60% or more of the initial bullish candle’s opening.  In between those two candles can be a single doji or spinning top, or several.

Tip: You can confirm the evening star once the final bearish candle has formed.

If you identify an evening star and decide to trade it, sell at the opening of the candle that follows the evening star’s final bearish candle.  Set your protective stop loss order at the last level of resistance (which will be the high of the evening star’s middle candle).

Trading evening stars can be particularly lucrative if you have a convergence (that is, the reversal implied by the evening star is further implied by a trendline or some other indicator).

Another cool candlestick pattern is the tweezer top candlestick pattern, which I’ll explain more about in the next rapid forex blog post by Brian Campbell.

Posted in Japanese Candlesticks, Technical Analysis

The Morning Star Candlestick Formation

Over the past few days I’ve discussed Japanese candlesticks in forex price charts, today I will show you the first candlestick pattern, the morning star formation.

A morning star candlestick formation forms at the end of a downtrend (it’s the bottom), potentially signaling a reversal into an uptrend.

A morning star formation, which includes three or more candles, is characterized by a larger bearish candle, followed by a small-bodied bullish or bearish candle (a spinning top or a doji), followed by a larger bullish candle.

In order to qualify as a morning star formation, the third bullish candle must close at or above 60% of the original bearish candle’s opening (counting the bottom of the middle candle as 0 and the opening price of the original bearish candle as 1).

As you can see in morning star picture below, a morning star formation can consist of more than three candles.

The defining characteristics are the initial larger bearish candle and a final larger bullish candle that closes at or above 60% of the initial bearish candle’s opening.  In between those two candles can be a single doji or spinning top, or several.

You can confirm the morning star once the final bullish candle has formed.

If you identify a morning star and decide to trade it, buy at the opening of the candle that follows the morning star’s final bullish candle.  Set your protective stop loss order at the last level of support (which will be the low of the morning star’s middle candle).

Trading morning stars can be particularly lucrative if you have a convergence (that is, the reversal implied by the morning star is further implied by a trendline or some other indicator).

In my next post, I will discuss the evening star japanese candlestick pattern. Hint: it’s just like the morning star only reversed. It will signals a trend reveral, but this time it reverses from an uptrend to a downtrend.  After that, I’ll introduce the tweezer top candlestick pattern.

Posted in Japanese Candlesticks, Technical Analysis

Japanese Candlestick Patterns – Doji & Spinning Tops

Once you understand the anatomy of a Japanese candlestick, it’s time to start learning some candle signals. Certain candlesticks have names.  By learning certain types of candlesticks, you can start to see patterns when the candlesticks appear in formations. By getting good at spotting these patterns, you’ll become a much more powerful trader!

A candlestick, when viewed alone, will tell you whether the bulls or the bears won that trading period.  Each candlestick measures price fluctuations within a certain time frame.

Viewed together, candlesticks can alert you to potential trend reversals.  There are two candlestick formations in particular that can be very useful tools for spotting coming reversals: the morning star (evening star) and the tweezer top (tweezer bottom).

Doji Candles

While the morning star (evening star) and tweezer top (tweezer bottom) formations indicate a trend reversal, individual candlesticks can also reveal important information about traders’ sentiment.
For example, a doji candle is a candle that has a very small body (or no body at all).  This candle reveals that prices during the trading session vacillated between distinct highs and lows but closed at or very near the opening price.
The fact that the session closed at or near the opening price makes the doji candle’s body either extremely thin or nonexistent (in the case that the doji’s body is nonexistent you will see a horizontal line, reflecting the fact that the session opened and closed at the same price).

It makes sense that this candle reveals indecision on the part of traders: the bulls brought prices up during the session, and the bears brought them down, but neither team could really decide what it wanted to do, so in the end, prices closed near the open.

Spinning Top Candles

A candle known as a spinning top also reveals indecision.  A spinning top is very similar to a doji except that the spinning top candle’s body is somewhat larger than that of a doji (where there is perhaps no body at all).

Still, a spinning top’s body is small compared to its wicks (the length of the wicks make up 60% or more of the total candle’s length).  The candle’s name is appropriate: with a small body and long upper and lower wicks, it looks like the spinning toys children play with.

A spinning top represents a near tie in the session’s tug-of-war between the bears and the bulls: each team managed to drag the market to high and low prices, but neither team could keep the market at the high or the low until close.

There are other patterns of Japanese candlesticks in forex price charts that you also need to be aware of. I’ll be discussing the most important ones in the next few blog posts!

Posted in Japanese Candlesticks, Technical Analysis