Important Stocks To Watch - Breakout Stocks/ Important Developments
The evening star candlestick pattern is a bearish reversal pattern that hints of a reversal from an uptrend to downtrend. Traders use this pattern to help them spot an early reversal in the stock they are trading. Those who are holding the stock can also use them to plan an early exit from their position. Some may even consider shorting the stock.
The picture above shows how the evening star candlestick pattern looks like. There will be a large bullish candle and then the stock will gap up to form a small body. This small body tells us that the momentum for the stock has slowed down. Finally, the stock gaps down and forms a large bearish candle.
It is important to note that when interpreting candle patterns, one should be flexible and not be too strict with the candle pattern. As long as the message is the same and clear, it should not hinder you to discover a certain candle pattern in the stock.
The chart of ADSK above show us a variation of the evening star pattern. First of all there was a large green candle. Then the stock gapped up and traded sideways in a small range for two days. Finally, the stock gapped down slightly and started to fall and formed a bearish candle. This completed the pattern and hinted of a short term reversal in the stock.
The chart above again shows a variation of the evening star candlestick pattern. There was a large green candle as the stock touched its 200 MA. The next day, the stock gapped up and traded sideways in a tight range for two days. Then the stock gapped down and formed a bearish candle. This completed the pattern and look how the stock drop and did not rise for a long time.
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