As we can see in the H4 chart, GBPUSD is rising within the mid-term correction. After the convergence, the pair has broken the high, as well as 50.0% fibo. Right now, the price is heading to reach its next upside target, 61.8% and 76.0% fibo at 1.2837 and 1.3040 respectively. The support is 38.2% fibo at 1.2500.
In the H1 chart, there is a divergence on MACD, which indicates a new pullback in the nearest future. Possibly, the pair may reach 61.8% fibo at 1.2837 and then start a new descending correction. The targets are 23.6%, 38.2%, 50.0%, and 61.8% fibo at 1.2686, 1.2592, 1.2516, and 1.2441 respectively.
EURJPY, “Euro vs. Japanese Yen”
As we can see in the H4 chart, EURJPY is testing its previous high. The current rising impulse helped to continue the mid-term correction; the closest upside target is 61.8% fibo at 120.50. The next targets may be inside the post-correctional extension area between 138.2% and 161.8% fibo at 121.14 and 121.82 respectively. Inside the same area, there is mid-term 76.0% fibo at 121.55. The support is at 117.07.
In the H1 chart, there is a divergence on MACD. We may assume that after reaching 61.8% fibo at 120.50, the instrument may resume falling towards 23.6%, 38.2%, 50.0%, and 61.8% fibo at 119.69, 119.19, 118.79, and 118.38 respectively.
As we can see in the H4 chart, after finishing the correctional wave, AUDUSD is forming a new rising impulse. In the future, the impulse may reach 50.0% and 61.8% fibo at 0.6782 and 0.6809 respectively. After completing the pullback and breaking the low at 0.6671, the price may continue falling towards the post-correctional extension area between 138.2% and 161.8% fibo at 0.6595 and 0.6543 respectively.
In the H1 chart, has completed the correctional decline at 61.8% fibo. The current growth is heading to break the high at 0.6774.
USDCAD, “US Dollar vs Canadian Dollar”
As we can see in the H4 chart, USDCAD is forming a mid-term rising tendency towards the high at 1.3382. After breaking it, the price may continue the ascending tendency towards the mid-term target, which is 76.0% fibo at 1.3433. The support is 38.2% fibo.
In the H1 chart, the pair continues moving sideways and has already reached 38.2% fibo. In the future, the decline may continue towards 50.0% and 61.8% fibo at 1.3277 and 1.3260 respectively. After breaking the resistance at 1.3348, the price may continue growing.
As we can see in the H4 chart, the convergence made the pair complete the descending correction at 61.8% fibo and start a new growth, which has already reached 61.8% fibo. The next upside targets may be 76.0% fibo at 1533.25 and the high at 1557.00. If XAUUSD breaks the high, the instrument may continue growing towards the post-correctional extension area between 138.2% and 161.8% fibo at 1594.45 and 1617.25 respectively.
In the H1 chart, we can see a short-term pullback, which has already reached 38.2% fibo and may yet continue towards 50.0% and 61.8% fibo at 1489.34 and 1482.18 respectively. The resistance is the high at 1519.57.
USDCHF, “US Dollar vs Swiss Franc”
As we can see in the H4 chart, the divergence made the pair finish the ascending tendency at 61.8% fibo. However, if the price breaks the high at 1.0028, the tendency may yet continue to reach 76.0% fibo at 1.0098. Still, the divergence indicates a new decline in the first place, which has already reached 23.6% fibo. The next downside targets may be 38.2%, 50.0%, 61.8%, and 76.0% fibo at 0.9887, 0.9844, 0.9801, and 0.9748 respectively.
In the H1 chart, after completing the descending impulse, the pair is still testing 23.6% fibo. The next downside target is 38.2% fibo at 0.9887.
The Evening Star candlestick is a three-candle pattern that signals a reversal in the market and is commonly used to trade forex. Correctly spotting reversals is crucial when trading financial markets because it allows traders to enter at attractive levels at the very start of a possible trend reversal.
This article explores the following talking points:
What is an Evening Star candlestick?
How to Identify an Evening Star on forex charts
How to trade the Evening Star candlestick pattern
The reliability of the Evening Star in forex trading
WHAT IS AN EVENING STAR CANDLESTICK?
The Evening Star pattern is a three-candle, bearish reversal candlestick pattern that appears at the top of an uptrend. It signals the slowing down of upward momentum before a bearish move lays the foundation for a new downtrend.
HOW TO IDENTIFY AN EVENING STAR ON FOREX CHARTS
Identifying the Evening Star on forex charts involves more than simply identifying the three main candles. What is required, is an understanding of previous price action and where the pattern appears within the existing trend.
Establish an existing uptrend: The market should be exhibiting higher highs and higher lows.
Large bullish candle: The large bullish candle is the result of large buying pressure and a continuation of the existing uptrend. At this point traders should only be looking for long trades as there is no evidence of a reversal yet.
Small bearish/bullish candle: The second candle is a small candle – sometimes a Doji candle – that presents the first sign of a fatigued uptrend. Often this candle gaps higher as it makes a higher high. It does not matter if the candle is bearish or bullish as the main takeaway here is that the market is somewhat undecided.
Large bearish candle: The first real sign of new selling pressure is revealed in this candle. In non-forex markets, this candle gaps down from the close of the previous candle and signals the start of a new downtrend.
Subsequent price action: After a successful reversal, traders will observe lower highs and lower lows but should always manage the risk of a failed move through the use of well-placed stops.
Traders will often look for signs of indecision in the market where buying pressure subsides and leaves the market somewhat flat. This is the ideal place for a Doji candle to appear.
Evening Star Doji
Doji candles can be observed as the market opens and closes at the same level or very close to the same level. This indecision paves the way for a bearish move as bears see value at this level and prevent further buying. The appearance of the bearish candle after the Doji provides this bearish confirmation.
WHAT ABOUT THE MORNING STAR
The bullish version of the Evening Star is the Morning Star and it signifies a potential turning point in a falling market (bullish reversal pattern). The same analysis applied to the Evening Star can be implemented with the Morning Star however, it will be the opposite direction.
HOW TO TRADE THE EVENING STAR CANDLESTICK PATTERN
The Evening Star pattern can be observed in the EUR/GBP chart below, where there is an established uptrend leading up to the formation of the reversal pattern.
Looking at the chart, once the formation has completed, traders can look to enter at the open of the very next candle. More conservative traders could delay their entry and wait to see if price action moves lower. However, the drawback of this is that the trader could enter at a much worse level, especially in fast moving markets.
Targets can be placed at previous levels of support or previous area of consolidation. Stops can be placed above the recent swing high, as a break of this level would invalidate the reversal. Since there are no guarantees in the forex market, traders should always adopt soundrisk management while maintaining a positive risk to reward ratio.
When trading the Evening Star on forex markets, the price will very rarely gap like they do with stocks and so the three-candle pattern usually opens very close to the previous closing level.
HOW RELIABLE IS THE EVENING STAR IN FOREX TRADING?
The Evening Star, like most candlestick patterns, should be assessed in line with the current trend and whether there is supporting evidence in favour of the trade, when looking at an indicator. Below are the advantages and limitations of the Evening Star pattern:
Occurs frequently in the forex market
A failed reversal is possible, and price could move further up
The pattern presents well-defined entry and exit levels