Evening Doji Star Candlestick Pattern: The evening doji star candlestick pattern is an important component of technical analysis, a process for forecasting future price movements based on previous market data, with an emphasis on price and volume patterns. Candlestick patterns, which include open, high, low, and closing prices, provide traders with significant insights into market mood and future trend movements.

These patterns help traders make well-informed stock buying and selling choices by visually reflecting price movement over certain time frames, as well as offering critical information about market dynamics and potential trading opportunities.

Evening Doji Star Candlestick Pattern – Definition

The evening doji star candlestick pattern, consisting of three candles, indicates a negative shift in the market mood. Similar to the evening star pattern, this formation is most effective after an uptrend, enhancing the chances of a successful bearish reversal. This pattern consists of a long-bodied green candle, followed by a doji candle, and ends with a long-bodied red candle.

Evening Doji Star Candlestick Pattern – Formation

A few conditions need to be fulfilled for a three-candlestick pattern to be called an evening doji star candlestick pattern and they are as follows:

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  • The first candle must be a long-bodied bullish candle along the uptrend.
  • The second candle must be a doji that opens near or above the close price of the previous candle.
  • The third candle must be a long-bodied bearish candle that opens near or below the close price of the previous candle.

Understanding The Evening Doji Star Candlestick Pattern

The evening doji star candlestick pattern often indicates a shift in market mood and the possible end of the upward rally. Initially, the first candle is green, indicating a strong purchasing pressure that is driving prices upward. Following that, a doji candle appears which implies equal buying and selling pressure in the security.

Finally, a red candle appears, indicating that selling pressure has outweighed purchasing pressure, signalling a shift in market mood. Based on the formation of this pattern and confirmation from other indicators, traders can choose to take a short position or exit a long position that they already hold.

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Evening Doji Star Candlestick Pattern – Trading Ideas

Evening Doji Star Candlestick Pattern

Traders who wish to trade based on this pattern should ensure that the trend before its formation needs to be an uptrend. Once that is confirmed, the following are the guidelines for taking a trade:

  • ENTRY: when the price of the stock starts trading below the close price of the third candle of this pattern, traders can take a short position.
  • TARGET: Traders have the option to exit the trade as the stock price approaches the nearest support level. Upon reaching this level, they may choose to book partial profits and retain the remaining position until the subsequent support level.
  • STOP LOSS: Traders can place the stop loss near the high price of the evening doji star candlestick pattern.

Evening Doji Star Candlestick Pattern – Example

Evening Doji Star Candlestick Pattern - example

In the above one-day chart of HDFC BANK, we can observe the formation of the evening doji star candlestick pattern after an uptrend. As discussed in the article, the price of the stock saw a bearish trend after the formation of this pattern.

At the time of the formation of this pattern, traders could have taken a short position when the price went below Rs. 1084.55 and the stop loss was at Rs. 1105.75

Difference between Evening Star and Evening Doji Star Candlestick Pattern

The Evening Star is formed with three candles: A large bullish candle, followed by a small-bodied candle, and finally, a large bearish candle closing below the first candle’s midpoint. On the other hand, the Evening Doji Star candlestick pattern features a doji candle instead of a small-bodied candle in the second position, indicating heightened market indecision.

While both patterns suggest indecision followed by bearish momentum, the indecision in the Evening Doji Star candlestick pattern is greater.

Evening Doji Star Candlestick Pattern – Key Features

  • The first candle is a long-bodied green candle along the uptrend.
  • The second candle is a doji that opens near the close of the previous candle.
  • The third candle is a long-bodies red candle that opens near the close of the previous candle.
  • The formation of this pattern indicates a bearish reversal.

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Conclusion

Finally, the Evening Doji Star candlestick pattern is a reliable signal for predicting trend reversals in financial markets. Its unusual structure, which includes a doji candle sandwiched between a long red candle and a following long green candle, indicates a shift from a bullish to a negative mood.

When combined with other technical indicators and extensive market study, this pattern provides traders with vital information for making sound judgments. Nonetheless, it is critical to follow effective risk management procedures at all times. By including the Evening Doji Star pattern into their toolset, traders may more confidently spot winning trading opportunities and handle market turbulence.

​​Written by Praneeth Kadagi

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