The "Evening Star" in trading: How to identify a trend reversal?
The Evening Star is a powerful candlestick formation in technical analysis that warns of a potential reversal in an uptrend.
šCandlestick formation: The pattern consists of three candles. The 1-st candle is bullish, the 2-nd is a short candle with a small body and an upward shadow, and the 3-rd is bearish.
ā“ļø Upper shadow of the 2-nd candle: Indicates that prices initially rose above the opening but then retraced and closed near the opening. This forms a short candle known as the "Star."
š Opening and closing: The 2-nd candle closes below the 1-st candle's close, and the 3-rd candle closes below the 2-nd candle's opening. This indicates a shift in sentiment from rise to fall.
š” When this pattern is detected, it is recommended to refrain from buying "Up" options and wait for confirmation of the situation's development. A full-bodied bearish candle formed after the Evening Star often confirms the trend reversal.