Candlestick patterns are one of many tools used by technical analysts to decide when to buy and sell a stock. Chief amongst these is the evening doji star candlestick pattern, which usually signals a bearish trend reversal.
Despite being one of the most rarely observed candlestick patterns, I’ve always found it to be one of the most reliable trading signals in my time as a professional trader. In this article, I will explain the intricacies of this pattern and how to spot it in practice.
What is an Evening Doji Star?
In technical analysis, an evening doji star is a three-candlestick pattern that indicates a potential reversal in the price trend of a stock. More specifically, it is a bearish reversal pattern that usually signals the end of an uptrend. Therefore, it is also simply known as a bearish doji star candlestick pattern.
What makes it unique is the doji candlestick in the middle of the three-candle sequence. A doji candle is a rare occurrence that refers to a candle where the closing and opening price is the same. As such, it represents a moment of indecision in the security’s trend.
As a side note, a double doji represents and even stronger moment of indecision and a greater chance of a trend reversal.
How to Spot a Bearish Doji Star Pattern
The first thing you need to spot this pattern is a charting software that displays candlestick prices, like TC2000 or MetaStock.
The bearish doji star pattern appears towards the end of an uptrend in the stock price and consists of three candlesticks:
- The first candle is a long green candle that represents bullish momentum
- The second is a doji candlestick that represents indecision
- The third candle is a long red candlestick that shows bearish momentum
The image below shows what this setup looks like in practice. Importantly, the second candle is a doji pattern, where the open and close price are practically at the same level.
As you can see, this pattern marked the end of an uptrend and the beginning of a new downtrend.
Traders and investors use the bearish doji star pattern as a signal to sell their long positions or enter short positions in anticipation of a downtrend.
However, like with any technical analysis pattern, it is critical to utilize it in combination with other types of analysis and not rely on it solely to make trading decisions.
Evening Star Pattern
A closely related candlestick formation to the evening doji star is simply the evening star pattern.
Just like the doji star pattern, an evening star is a three-candlestick pattern that signals a potential reversal in an uptrend.
The pattern begins with a long bullish candlestick, signaling that the buyers are in charge and the market is climbing. Following this is a second candle with a small body that can either be a bullish or a bearish candle. This candlestick indicates that the market is losing its momentum.
The last candlestick on the evening star pattern is a long bearish candlestick, implying that the market has been taken over by sellers. This candlestick pattern shows that the market has reached its limit and that the uptrend is coming to an end.
Difference Between Evening Star and Evening Doji Star
Despite the fact that the evening star and evening doji star may appear similar at first glance, these two patterns share a small difference.
While both start with a long bullish candlestick and end with a long bearish candlestick, the main difference is that the middle candle in the evening star can be any size and color, whereas the middle candlestick in the evening doji star pattern is a simple doji candlestick pattern.
Evening Doji Star Examples
Below are some examples of evening doji star patterns. I have also highlighted some examples of evening star patterns to help you tell the difference between the two.
Note how in almost all cases, it marks the reversal of an uptrend and beginning of a new downtrend. However, as with anything in technical analysis, nothing works 100% of the time, so you will also see an example where the reversal signal failed.
Note, I used MetaStock’s candlestick recognition screener to detect these stocks, however TrendSpider is arguably better. Finviz offers a less powerful, but cheaper candlestick stock screener.
Allstate
Align Technology
Church and Dwight
Ford
The key difference between an evening star and evening doji star formation is whether the second candle is a doji candle or not.
JP Morgan
Target
Yum Brands
Here is a case where the pattern failed as a reversal signal.
FAQs
What is the Evening Doji Star Candlestick Pattern?
The evening doji star candlestick pattern is a three-candlestick patterns in technical analysis that appears at the end of an uptrend. It has a long bullish candlestick, a doji candlestick, and a long bearish candlestick signaling a potential reversal in the uptrend.
How Can Traders Use the Bearish Doji Star Candlestick Pattern?
Traders can use it to make trading decisions, such as selling their long positions or entering short positions, in anticipation of a downtrend.
Can the Evening Doji Star Candlestick Pattern be Combined With Other Technical Analysis Tools?
Yes, it can be combined with other technical analysis tools like the MACD or RSI to provide a confirmation of the trading signal and improve the accuracy of trading decisions.
What’s the Difference Between an Evening Star and Evening Doji Star Candlestick Pattern?
The difference between the two lies in the middle candlestick. The evening star has a small-bodied, bullish or bearish candlestick, while the evening doji star has a doji candlestick. A doji means that the opening and closing prices of the candlestick are the same or nearly at the same level. As a side note, a four-price doji is an even rarer occurrence where the open, close, high, and low are all the same price.
Is the Evening Doji Star a Bearish Reversal Pattern?
The answer is yes, and there are several reasons why.
First, the pattern appears at the end of an uptrend, indicating that bullish momentum is beginning to subside and bears are gaining momentum. The long bullish candlestick at the start of the pattern reflects the last gasp of the buying pressure, while the doji signals that the buyers’ hold on the market is slipping.
Second, the extended bearish candlestick that follows the doji indicates that the bears have taken control of the market. This candlestick can occasionally last longer than the previous bullish candlestick, signaling a significant shift in the market.
Lastly, the doji candlestick symbolizes market indecision, and when it comes at the end of the uptrend, it can be a strong indicator of an upcoming reversal. This is especially true when the doji appears at a significant resistance level, suggesting that the buyers are encountering difficulties to drive prices upward.
What is a Bullish Doji Star Pattern?
While the bearish doji star pattern starts with a long bullish candlestick and ends with a long bearish candlestick, a bullish doji star candlestick formation is the opposite. This is also known as a morning doji star pattern.
The bullish doji star pattern is a three-candlestick pattern that appears at the end of a downtrend.
It begins with a long bearish candlestick, indicating that the bears have been in control of the market. This is followed by a small doji candlestick, which shows indecision in the market. The final candlestick is a long bullish candlestick, signaling that the bulls have taken control of the market and a new uptrend is underway.
The chart of Visa below shows what this looks like in practice. As you can see, the bullish doji star pattern marked the bottom of the downtrend and the beginning of the subsequent uptrend.
