The Evening Star & ADX Strategy is a highly effective reversal trading method that blends candlestick psychology with trend strength confirmation. The Evening Star pattern signals a potential bearish reversal after an uptrend, while the Average Directional Index (ADX) confirms whether a strong trend is indeed losing momentum.

This combination works especially well in forex, indices, and commodities when price approaches resistance levels or overbought zones.

What Is the Evening Star Pattern?

The Evening Star is a three-candle bearish reversal pattern that forms after a strong upward move.

Structure:

1. First Candle: Strong bullish candle
2. Second Candle: Small-bodied candle (e.g. doji or spinning top), showing indecision
3. Third Candle: Strong bearish candle closing below the midpoint of the first

Implication: Momentum is shifting from buyers to sellers.

What Is ADX?

The Average Directional Index (ADX) measures trend strength, not direction.

Key levels:

• Above 25: Strong trend
• Below 20: Weak or range-bound market
• Used alongside +DI and –DI lines to gauge bullish or bearish control

Strategy Objective

• Identify a weakening uptrend using the Evening Star
• Confirm reduced trend strength with a falling or plateauing ADX
• Enter short trades with confidence and defined risk

Indicators and Tools Required

• Candlestick chart
• ADX indicator with +DI and –DI (default period: 14)
• Optional: Resistance zone, round number, or Fibonacci level

Step-by-Step Strategy Setup

Step 1: Identify an Uptrend

• Price should be making higher highs and higher lows
• Look for extended rallies or near key resistance zones

Step 2: Spot the Evening Star Pattern

• First candle: large bullish
• Second candle: indecision (small-bodied)
• Third candle: strong bearish close below midpoint of first

Step 3: Confirm with ADX

• ADX above 25 but starting to flatten or decline
• –DI crossing above +DI enhances signal (bearish shift in trend strength)

Step 4: Entry

• Enter short at the close of the third candle, or on a minor pullback
• Ensure pattern forms at logical resistance

Step 5: Stop Loss

• Just above the high of the Evening Star formation
• Can use recent swing high if more conservative

Step 6: Take Profit

• Nearest support zone or Fibonacci retracement level
• Alternatively, use 1:2 risk-to-reward ratio

Example: EUR/JPY H4 Chart Setup

• Strong uptrend into 161.50 resistance
• Evening Star forms with third candle closing at 160.90
• ADX peaks at 31 and begins falling
• –DI crosses above +DI, confirming shift
• Entry: Short at 160.90
• Stop Loss: 161.70
• Take Profit: 159.50

Best Markets and Timeframes

• Forex majors and crosses (EUR/USD, GBP/JPY, USD/CHF)
• Indices like NAS100, SPX500
• Timeframes: H1, H4, D1 for higher accuracy
• Avoid choppy sessions or low-volume periods

Optimisation Tips

• Combine with bearish divergence on RSI or MACD for extra conviction
• Avoid trading if the third candle is weak or does not close below the first candle’s midpoint
• Look for volume drops or rejection wicks at the highs for additional confirmation

Advantages

• Filters false signals using both candlestick logic and trend strength
• Clear structure and entry/exit criteria
• Works well around known resistance zones
• Enhances confidence during fading bullish trends

Limitations

• Less effective in sideways or weak trends
• Requires price context; not every Evening Star is a trade signal
• ADX confirmation may cause slight entry delay

Conclusion

The Evening Star & ADX Strategy is a powerful tool for spotting bearish reversals with trend strength validation. By waiting for both the visual cue of exhaustion and the statistical weakening of the trend, traders can enter high-probability setups with defined risk and greater confidence.

To master candlestick-based reversal strategies with institutional-level confirmation techniques, enrol in our Trading Courses and sharpen your edge in all market conditions.