There are several known candlesticks patterns, but here we will discuss only the evening star pattern and how it can assist a crypto trader.
Evening star pattern: Detecting the crypto market uptrend
Do you know that candlesticks patterns were introduced by a Japanese rice trader in the 1800s? He relied on them to identify the prices in a trading period three centuries ago. But how do they work? There are several known candlesticks patterns, but here we will discuss only the evening star pattern and how it can assist a crypto trader.
What is an evening star pattern?
An evening star pattern is a technical indicator known to detect a downward trend or a bearish reversal in the crypto market. It consists of three candlesticks:
- A large green/ white candlestick: Represent a significant price change and considerable selling or buying pressure.
- The small green one: The smaller ones indicate indecision, smaller price movements, and gain.
- A third large and red-bodied one: Indicates that a reversal is starting and buyers are losing control over the price movements.
Combined with other trading tools, an evening star pattern alerts traders to the potential volatility in the crypto market. It also helps them exit the bullish position to lock in the profits.
How does the evening star pattern work in a crypto market?
The three candles in an evening star pattern combined to assist the trader with the more significant crypto market trends. Usually, the pattern is found at the end of an uptrend, signaling that a bearish reversal is about to start.
The first large green candle indicates the bullish crypto market in an evening star pattern, meaning there is a rise in prices, and investors and traders are jumping on board to buy/sell. After the first candle closes the position, the second smaller one represents a modest price change and gain, signifying that the buying power is diminishing. Notably, the second candle is what gives the pattern the name of the evening star.
The third large red-bodied candle then appears to correct lower, opening below the high of the second candle, indicating that the bullish trend has completely dissipated. The sellers take over the crypto market, and the gain from two previous candles evaporates.
How does it help a crypto trader?
After detecting the formation of an evening star pattern, entering a new positing or exiting one is relatively easy. As the candlesticks pattern signals a bearish reversal, it can be used to enter a new short-sell position. If the pattern forms near a crypto resistance level, it alerts the trader that a bear reversal is about to start.
While many candlestick patterns are known to help traders identify price movements in the market, an evening star pattern can be a reliable technical tool for crypto traders. This tool consists of three candles, which appear over a market uptrend and signify the start of a bearish reversal before the market corrects itself and diminishes the previous gains. Moreover, the pattern helps the crypto trader prepare for market volatility and can be used to enter a new short-sell position.