Trading the Pattern of the Evening Star

The launch of the advanced reasoning model DeepSeek-R1 and the subsequent collapse of NVIDIA's share prices, which effectively wiped out nearly $600 billion of the tech giant's market capitalization, dominated recent finance and market news.

DeepSeek claimed that it trained its V3 model (R1s predecessor) in less than two months and spent less than $6 million, which is at least 94% less than the typical cost of developing language learning models. This was the cause of the drop in NVIDIA's stock value. NVIDIA is slowly recovering from the overhyped sell-off caused by the release of DeepSeek-R1, and analysts are generally optimistic. A NASDAQ insight piece indicates that the stock has a strong buy consensus. NVIDIA shares clearly have a bullish trend, but could they fall again?

It's possible that we can tell. The evening star pattern can be observed on the candlestick chart of NVIDIA shares.

What Are Candlestick Patterns and Candlesticks?

Candles, also known as candlesticks, are graphical representations of an asset's open, close, high, and low for a particular time period, such as a day. Candlesticks can be black and red or white and green. When a candlestick is white or green, it means that the asset closed higher than it opened, which indicates that the candle is bullish. In the meantime, an asset closing at a level lower than its opening price is an indication of a bearish day, week, or other period. The candle body is the interval between the asset’s opening and closing. Additionally, candles have wicks, which is why they appear to be candles. A candle's entire length is comprised of its body and wicks.

Straight lines that project from the top, bottom, or both are known as wicks or shadows. To put it another way, candles may or may not have two wicks. The high price of that trading period is shown by the upper limit of an upper wick, while the low price of that period is shown by the lower limit of a lower wick. The length of the upper wick in a bullish candle is the difference between the closing price and the high, while the length of the lower wick is the difference between the opening price and the low. The distance between the opening price and the high is measured by the length of the upper wick in a bearish candle, while the distance between the opening price and the low is measured by the length of the lower wick.

A candlestick chart is one in which a group of candlesticks are displayed together. Candlestick patterns are patterns that the candlesticks can be recognized by at times. There are, according to some, more than 70 candlestick patterns. The evening star is one of the most familiar and well-known.

What Is the Evening Star Pattern?

The pattern of the evening stars is bearish. To put it another way, it may indicate that an uptrend is about to reverse. What kind of pattern is the evening star pattern? It consists of three candles that appear to be: The first candle is bullish (having a higher close than an open). Because it has a long body, the open and closing prices are significantly different, indicating that buyers are exerting significant upward pressure. The second candle is a sign of uncertainty or indecision because buyers and sellers, two opposing forces, exert pressure on it, resulting in a candle with a very short body. It could be a long-legged doji with two long shadows—one at the top and one at the bottom—and the body is less than or equal to 5% of the total candle length. As a result, there is a negligible difference between the opening and closing prices.The candle may also be a spinning top, with long top and bottom shadows; the body is short, too, but not as short as a doji.

The third candle:The close is significantly lower than the midpoint of the first candle, indicating that the third candle is bearish. It suggests that the need to sell has prevailed over the desire to buy.

Validating the Evening Star Pattern

The close is significantly lower than the midpoint of the first candle, indicating that the third candle is bearish. It suggests that the need to sell has prevailed over the desire to buy.How do you do this?

How do you do this? Check the following, as these can strengthen the possibility that the evening star you spotted is accurately signalling the reversal of an uptrend:

Did an extended uptrend precede the evening star pattern?

Was there a trading volume spike when the third candle (the bearish candle) formed?

Was the evening star close to resistance levels or supply zones?

Has there been news, an announcement, an event, or anything else that could stoke the downtrend that has been indicated?

Other technical tools should also be used to confirm the coming downtrend. Moving averages, relative strength indices, and oscillators should all be examined. Last but not least, the evening star is more reliable on daily, weekly, or monthly charts because these are less affected by short-term changes.

Take Note of the Evening Star

After a prolonged uptrend, the evening star candlestick pattern can suggest a possible price decline for an asset. When you spot it, check with your online broker to make sure it's true. You can short the asset to profit from the anticipated downtrend if it is true.