Evening Doji Star

The evening doji star is a three-bar bearish reversal Japanese candlestick pattern that is best traded using mean reversion strategies in all markets backtested.

If you’re a candlestick trader, you might be surprised to learn that most trading advice goes against what history tells us. The data shows that this pattern will likely lead to volatility and not a bearish trend change.

Keep reading if knowing what historical data says about the best evening doji trading strategy excites you.

What Is an Evening Doji Star Candlestick Pattern?

Evening Doji Star Candlestick Pattern Illustration © Analyzing Alpha
Evening Doji Star Candlestick Pattern Illustration

The evening doji star is a three-bar bearish reversal candlestick pattern that is best traded using a bullish mean reversion strategy in the stock market and a bearish mean reversion strategy in the forex markets.

The name comes from the doji that gaps above the prior candle and supposedly represents future darkness–bearish action.

The name suggests doom and gloom, but going heavily bearish will cost you dearly. But before we get into the optimal evening doji star trading strategy, let’s learn how to identify this three-bar pattern on our candlestick charts.

How to Identify the Evening Doji Star Candlestick Pattern

Evening Doji Star Candlestick Pattern on the Adobe (ADBE) April 19th, 2021 daily chart
Evening Doji Star Candlestick Pattern on the Adobe (ADBE) April 19th, 2021 daily chart

The following are the requirements for a valid evening doji star candlestick pattern:

  • The first candle must be bullish and long.
  • The second candle must be a doji that gaps up.
  • The third candle must be bearish and move well within the first candle’s real body.
  • The evening doji star must occur in an uptrend.

We see the evening doji star candlestick pattern on the Adobe (ADBE) April 19th, 2021, daily chart.

There is an existing uptrend as the price is above the fifty-day simple moving average. The first day prints a sizeable bullish candle, the second day gaps up and forms a doji, and the third day moves well within the first candle’s real body, fulfilling the doji star pattern requirements.

Now that we know how to identify the evening doji star pattern, let’s learn how to trade it on our candlestick charts.

How to Trade the Evening Doji Star Pattern

The evening doji star should be traded using a bullish mean reversion strategy in the stock market and a bearish mean reversion strategy in the forex market, according to our 21-year backtest.

Crypto traders should avoid this pattern due to the lack of data to produce a statistically significant result.

Before we discuss the optimal doji star candlestick trading strategy, let’s discuss how conventional technical analysis recommends trading this pattern.

Evening Doji Star Bearish Reversal Trade Setup

Evening Doji Star Bearish Reversal Trade Setup on the Amazon (AMZN) February 3rd, 2021 daily chart
Evening Doji Star Bearish Reversal Trade Setup on the Amazon (AMZN) February 3rd, 2021 daily chart

We see that price is above the fifty-day moving average, which we’re using as a proxy for a short-term uptrend. There’s a large green candle followed by a doji. The third day prints a sizable bearish candle that closes within the first day’s real body, fulfilling the candlestick pattern requirements.

We see a single candle whose open and close is almost equal with a very short upper wick. With the pattern identified, data-driven traders enter short when the price falls below the close with a stop loss above the doji candle’s high.

This Amazon trader profited nicely from the trade, but they’re going against history. Instead, data-driven stock and forex traders will capitalize on this pattern’s volatility.

Evening Doji Star Bullish Mean Reversion Trade Setup

Evening Doji Star Bullish Mean Reversion Trade Setup on the Tesla (TSLA) November 13th, 2021 daily chart
Evening Doji Star Bullish Mean Reversion Trade Setup on the Tesla (TSLA) November 23th, 2021 daily chart

Data-driven stock market traders will go bullish after the price crosses below and then back above the pattern’s low, setting a stop loss at one ATR.

Let’s shine some morning light on the evening star doji forming on the November 23rd, 2021, daily chart.

The price is in an uptrend as it’s above the fifty-day simple. We see a sizable bullish candle followed by a doji gapping up. The third candle is bearish, whose real body crosses well within the first candle’s real body. The pattern low occurred on November 23rd, 2021, at $354.23. The price passes below and back above $354.23 the next day, triggering an entry.

This savvy stock trader made bank taking profits a few days later. But forex traders should have a different exchange.

Evening Doji Star Bearish Mean Reversion Trade Setup

Evening Doji Star Bearish Mean Reversion Trade Setup on the Bitcoin (BTCUSD) November 6th, 2011 daily chart
Evening Doji Star Bearish Mean Reversion Trade Setup on the Bitcoin (BTCUSD) November 6th, 2011 daily chart

Fantastic forex traders wait for the price to cross above the pattern high and enter short when the price crosses down below that same high, setting a stop loss of one ATR.

Let’s use the Bitcoin (BTCUSD) November 6th, 2017, daily chart to make this lucid.

The pattern high is set on the second candle at $7,630. The price crosses above and back below this price on November 8th, triggering an entry. This crypto trader profited handsomely.

Speaking of significant gains, what can history tell us about the profitability of the best evening doji star trading strategies?

Does the Evening Doji Star Candlestick Pattern Work? (Backtest Results)

Using the following rules, I backtested the evening doji star pattern on the daily timeframe in the crypto, forex, and stock markets.

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5. 
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits are discussed in the how-to trade section above.
  • Confirmation must occur within three days of the pattern signal.

Similar Candlestick Patterns

Multiple candlestick patterns are often confused with the evening doji star pattern. Understanding the differing factors when using candlestick pattern technical analysis is of utmost importance.

Morning Doji Star vs. Evening Doji Star

Morning Doji Star Candlestick Pattern Illustration © Analyzing Alpha
Morning Doji Star Candlestick Pattern Illustration

The morning doji star candlestick pattern is the mirror image of the evening doji star pattern. The morning doji star occurs in a downtrend. Its first candle is long and bearish. The second candle is a gap down doji. The third candle is bullish and closes the gap. 

Traditional technical analysts think of these patterns as reversal patterns where the data shows them both to portend incoming volatility.

Evening Star vs. Evening Doji Star

Morning Star Candlestick Pattern Illustration © Analyzing Alpha
Morning Star Candlestick Pattern Illustration

The evening star candlestick pattern is similar to the evening doji star. They are both three-bar patterns considered as bearish reversals. The difference between the evening star and the evening doji star is that the evening star’s middle candle is a short-bodied candle instead of a doji.

The Bottom Line

The evening doji star candlestick pattern is a three-bar bearish reversal pattern that historically leads to volatility. The best evening doji star trading strategy is a bullish mean reversion strategy in the stock market and bearish mean reversion strategy in the forex market.

Data-driven crypto traders should pass on this pattern as there isn’t enough data on the daily to determine a best trading strategy with statistical significance. Instead, check out my ultimate guide for the best crypto candlestick patterns.

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