CDL_EVENINGDOJISTAR (Evening Doji Star)¶

Overview¶

The Evening Doji Star is a three-candle bearish reversal pattern that typically appears at the top of an uptrend. It consists of a long bullish candle, followed by a doji that gaps up, and then a long bearish candle that closes well into the body of the first candle. This pattern signals potential trend exhaustion and a shift from bullish to bearish sentiment, warning traders of an imminent downward reversal.

Parameters¶

Parameter	Type	Default	Description
`open`	Array	Required	Array of opening prices for each period
`high`	Array	Required	Array of high prices for each period
`low`	Array	Required	Array of low prices for each period
`close`	Array	Required	Array of closing prices for each period
`penetration`	Float	0.3	Percentage of penetration of the third candle into the first candle's body (0.0 to 1.0)

Parameter Details¶

Note: Array elements should be ordered from oldest to newest (chronological order)

open - Opening price for each trading period - Must be same length as high, low, and close arrays - Used to determine candle body direction and size

high - Highest price reached during each trading period - Must be same length as other price arrays - Critical for identifying gaps and upper shadows

low - Lowest price reached during each trading period - Must be same length as other price arrays - Used to identify shadow lengths and gap characteristics

close - Closing price for each trading period - Must be same length as other price arrays - Used to determine candle body direction and pattern completion

penetration - Controls how far the third candle must close into the first candle's body - Default 0.3 means 30% penetration required - Higher values (e.g., 0.5) make pattern detection more strict - Lower values (e.g., 0.1) make pattern detection more lenient

Usage¶

Basic Usage¶

require 'sqa/tai'

# Price data arrays showing uptrend and reversal
open  = [45.0, 47.0, 48.5, 48.6, 46.5]
high  = [47.5, 48.8, 48.7, 48.8, 46.8]
low   = [45.0, 46.8, 48.4, 48.5, 44.5]
close = [47.0, 48.5, 48.6, 48.5, 45.0]

result = SQA::TAI.cdl_eveningdojistar(open, high, low, close)
puts "Pattern Signal: #{result.last}"

With Custom Penetration¶

# More strict pattern detection with 50% penetration
result = SQA::TAI.cdl_eveningdojistar(
  open,
  high,
  low,
  close,
  penetration: 0.5
)

# Check for pattern detection
if result.last == -100
  puts "Bearish Evening Doji Star detected!"
end

Real-Time Pattern Monitoring¶

# Monitor multiple periods for pattern emergence
open  = [42.0, 44.0, 46.0, 48.0, 49.5, 49.6, 47.5]
high  = [44.5, 46.5, 48.5, 49.8, 49.8, 49.8, 47.8]
low   = [42.0, 43.8, 45.8, 47.8, 49.3, 49.4, 45.5]
close = [44.0, 46.0, 48.0, 49.5, 49.6, 49.5, 46.0]

result = SQA::TAI.cdl_eveningdojistar(open, high, low, close)

result.each_with_index do |signal, index|
  if signal == -100
    puts "Bearish pattern detected at period #{index}"
    puts "Entry: #{close[index]}, Previous high: #{high[index-1]}"
  end
end

Understanding the Indicator¶

What It Measures¶

The Evening Doji Star pattern measures potential reversal points at the end of bullish trends. It identifies a specific three-candle sequence that suggests buyers are losing control and sellers may be entering the market. The pattern is valuable because:

It shows indecision (doji) after a strong bullish move, indicating buyer exhaustion
The gap up followed by a gap down demonstrates a dramatic shift in sentiment
The strong bearish third candle confirms seller commitment
It provides an early warning of potential trend reversal at market tops

Pattern Formation¶

The pattern requires three consecutive candles in this specific sequence:

First Candle (Bullish): A long bullish candle showing strong buying pressure, typically near the peak of an uptrend. The candle should have a substantial body with close significantly above open.
Second Candle (Doji): A doji candle that gaps up from the first candle's close. The doji indicates market indecision with opening and closing prices nearly equal. This shows buyers are losing momentum.
Third Candle (Bearish): A long bearish candle that gaps down from the doji and closes well into the first candle's body (controlled by the penetration parameter). This confirms sellers have taken control.

Key Characteristics: - The doji must gap away from both the first and third candles - The third candle should close at least 30% (default) into the first candle's body - The gaps demonstrate dramatic sentiment shifts - All three candles should show clear directional intent or indecision

Indicator Characteristics¶

Range: Returns integer values: 0 (no pattern), -100 (bearish pattern detected)
Type: Pattern recognition, reversal indicator
Lag: None - identifies patterns as they complete (requires three candles)
Best Used: At the end of established uptrends, overbought conditions
Reliability: Moderate to high when confirmed with other indicators
Time Frame: Works on all time frames; more reliable on daily and weekly charts

Interpretation¶

Signal Values¶

The indicator returns specific integer values:

-100 (Bearish Signal): Evening Doji Star pattern detected
Indicates potential bearish reversal
Suggests uptrend may be ending
Sellers are overwhelming buyers
Consider short positions or exit longs with confirmation
0 (No Pattern): No Evening Doji Star pattern at this position
Pattern requirements not met
Continue monitoring other indicators
Wait for pattern completion or other signals

Pattern Strength Indicators¶

Assess the reliability of the pattern by examining:

Prior Trend Strength
Pattern is most reliable after extended uptrends
Multiple bullish candles before pattern increases significance
Weaker after sideways or choppy price action
Doji Quality
Smaller doji body indicates stronger indecision
Long shadows on doji show battle between buyers and sellers
Doji at resistance level increases pattern reliability
Third Candle Penetration
Deeper penetration into first candle = stronger reversal signal
Close below first candle's midpoint is particularly bearish
Higher volume on third candle confirms conviction
Gap Sizes
Larger gaps indicate more dramatic sentiment shift
Visible gaps on charts are more psychologically significant
Gap down on third candle especially important

Context Considerations¶

Location: Most effective at established resistance levels or after euphoric rallies
Volume: Increasing volume on third candle confirms reversal strength
Market Condition: Works best in trending markets, less reliable in ranging markets
Time Frame: Higher time frames (daily, weekly) provide more reliable signals

Trading Signals¶

Sell Signals¶

Primary conditions for entering short positions or exiting longs:

Pattern Confirmation
All three candles meet Evening Doji Star criteria
Signal value = -100
Doji clearly gaps from both first and third candles
Entry Criteria
Exit longs on close of third candle or
Enter shorts after confirmation: break below third candle's low
More conservative: wait for next candle to close lower
Additional Confirmation Factors
Pattern forms at known resistance level
RSI or other oscillators show overbought conditions
Volume increases on third candle
Prior uptrend was extended and clear

Example Scenario:

# After extended uptrend, pattern detected at resistance
if result.last == -100 &&
   rsi.last > 70 &&  # Overbought
   close.last < resistance_level &&  # Below resistance
   volume.last > volume[-2]  # Increasing volume

  entry_price = close.last
  stop_loss = high[-2] + (atr.last * 1.5)  # Above doji high
  target = entry_price - ((stop_loss - entry_price) * 2)  # 2:1 reward/risk

  puts "SELL Signal: Enter at #{entry_price}"
  puts "Stop Loss: #{stop_loss}"
  puts "Target: #{target}"
end

Position Management¶

Stop Loss Placement: - Conservative: Above the high of the doji (second candle) - Aggressive: Above the high of the third candle - ATR-based: 1.5-2x ATR above entry point

Take Profit Targets: - First target: Recent support level or 1:1 reward/risk - Second target: Next major support or 2:1 reward/risk - Trailing stop: After first target hit, trail with 2x ATR

Position Sizing: - Risk 1-2% of capital per trade - Calculate position size based on stop loss distance - Reduce size if pattern appears in choppy/ranging market

Exit Signals for Short Positions¶

Conditions for closing short positions:

Stop Loss Triggers
Price closes above stop loss level
Subsequent bullish engulfing pattern forms
Break above doji's high with volume
Take Profit Conditions
Price reaches predetermined target levels
Strong support level reached
Bullish reversal pattern forms at support
Pattern Failure Signs
Fourth candle closes above third candle with high volume
Price fails to move lower after pattern
Bullish candlestick pattern forms immediately after

Best Practices¶

Optimal Use Cases¶

The Evening Doji Star works best in these conditions:

Market Conditions: - Clear uptrend preceding the pattern (at least 5-10 bullish candles) - Overbought conditions per momentum indicators - Market approaching major resistance levels - Low volatility on doji, increasing volatility on third candle

Time Frames: - Daily charts: Most reliable and widely recognized - Weekly charts: Stronger signals, fewer occurrences - 4-hour charts: Good for swing trading - Intraday (< 1 hour): Less reliable, more false signals

Asset Classes: - Stocks: Highly effective, especially large-cap stocks - Forex: Works well on major pairs with sufficient liquidity - Commodities: Reliable on liquid contracts - Cryptocurrencies: Can work but volatility creates false signals

Combining with Other Indicators¶

Enhance reliability by confirming with complementary indicators:

With Trend Indicators: - Moving Averages: Pattern near 200-day MA resistance increases reliability - MACD: Bearish divergence or histogram turning negative confirms reversal - ADX: Low ADX suggests trend change possible; pattern helps identify direction

With Momentum Indicators: - RSI: Pattern + RSI > 70 = high probability reversal - Stochastic: Overbought stochastic crossing down confirms pattern - CCI: Emerging from overbought territory strengthens signal

With Volume Indicators: - Volume: Third candle volume > average confirms conviction - OBV: Falling OBV confirms distribution despite rising prices - Volume Profile: Pattern at high volume resistance node more significant

With Support/Resistance: - Fibonacci Retracements: Pattern at 38.2% or 50% retracement highly significant - Pivot Points: Pattern at daily/weekly pivot resistance adds conviction - Horizontal Resistance: Historical resistance level validates reversal potential

Common Pitfalls¶

Avoid these mistakes when trading Evening Doji Star patterns:

Ignoring Prior Trend
Pattern requires established uptrend to be valid
Appearing in downtrend or sideways market reduces reliability
Always confirm preceding bullish trend over multiple periods
Trading Without Confirmation
Don't enter on second candle expecting doji
Wait for third candle completion
Consider waiting for fourth candle to confirm reversal
Poor Risk Management
Pattern can fail; always use stop losses
Don't risk more than 2% of capital on single trade
Account for gap risk, especially in volatile markets
Neglecting Volume Analysis
Low volume on third candle suggests weak conviction
Declining volume through pattern reduces reliability
Always check volume confirms price action
Time Frame Mismatch
Using pattern on 5-minute chart with daily trend analysis
Ensure time frame of pattern matches trading style
Higher time frames provide more reliable signals
Over-optimization of Penetration Parameter
Don't adjust penetration based on historical data mining
Stick to default 0.3 or adjust slightly based on asset volatility
Over-optimization leads to curve fitting and poor future performance

Parameter Selection Guidelines¶

Choose optimal parameters based on trading style:

Short-term Trading (Day Trading): - Use 5-15 minute charts cautiously - Penetration: 0.4-0.5 (more strict) to reduce false signals - Require additional confirmation (volume, momentum) - Tighter stops due to noise in intraday data

Medium-term Trading (Swing Trading): - Use 4-hour to daily charts (recommended) - Penetration: 0.3 (default) works well - Balance between sensitivity and reliability - Hold positions for multiple days to weeks

Long-term Trading (Position Trading): - Use daily to weekly charts - Penetration: 0.2-0.3 (slightly looser) to catch all major reversals - Fewer signals but higher reliability - Combine with fundamental analysis

Backtesting Guidelines: - Test default parameters first (penetration = 0.3) - Vary penetration from 0.2 to 0.5 in 0.1 increments - Evaluate win rate, profit factor, and drawdown - Choose parameters that work across multiple assets - Avoid parameters that work for only one specific period

Practical Example¶

Complete trading scenario with context:

require 'sqa/tai'

# Historical price data showing uptrend
open  = [40.0, 42.0, 44.0, 46.0, 48.0, 49.5, 50.0, 49.6, 47.5, 46.0, 45.0]
high  = [42.5, 44.5, 46.5, 48.5, 50.0, 50.2, 50.2, 49.8, 47.8, 46.5, 45.5]
low   = [40.0, 41.8, 43.8, 45.8, 47.8, 49.3, 49.8, 49.4, 45.5, 44.5, 44.0]
close = [42.0, 44.0, 46.0, 48.0, 49.5, 50.0, 49.6, 49.5, 46.0, 44.8, 44.5]

# Calculate pattern with default penetration
pattern = SQA::TAI.cdl_eveningdojistar(open, high, low, close)

# Calculate supporting indicators
rsi = SQA::TAI.rsi(close, time_period: 14)
sma_50 = SQA::TAI.sma(close, time_period: 50)

# Analyze most recent signal
current_signal = pattern.last
previous_signals = pattern[-4..-2]

if current_signal == -100
  puts "=" * 50
  puts "EVENING DOJI STAR PATTERN DETECTED"
  puts "=" * 50

  # Pattern details
  puts "\nPattern Structure:"
  puts "  First Candle (Bullish): Open #{open[-3]}, Close #{close[-3]}"
  puts "  Doji Candle: Open #{open[-2]}, Close #{close[-2]}"
  puts "  Third Candle (Bearish): Open #{open[-1]}, Close #{close[-1]}"

  # Calculate pattern metrics
  first_body = (close[-3] - open[-3]).abs
  doji_body = (open[-2] - close[-2]).abs
  third_body = (open[-1] - close[-1]).abs
  penetration_pct = (close[-3] - close[-1]) / first_body

  puts "\nPattern Metrics:"
  puts "  First candle body: #{first_body.round(2)}"
  puts "  Doji body: #{doji_body.round(2)}"
  puts "  Third candle body: #{third_body.round(2)}"
  puts "  Penetration: #{(penetration_pct * 100).round(1)}%"

  # Confirmation factors
  puts "\nConfirmation Analysis:"
  puts "  Current RSI: #{rsi.last.round(2)}"
  puts "  RSI Status: #{rsi.last > 70 ? 'OVERBOUGHT ✓' : 'Not overbought'}"
  puts "  50-day SMA: #{sma_50.last.round(2)}"
  puts "  Price vs SMA: #{close.last > sma_50.last ? 'Above (reversal setup) ✓' : 'Below'}"

  # Trend confirmation
  uptrend_confirmed = close[-6..-4].all? { |c| c < close[-3] }
  puts "  Prior uptrend: #{uptrend_confirmed ? 'Confirmed ✓' : 'Weak'}"

  # Trading decision
  puts "\nTrading Decision:"

  if rsi.last > 65 && close.last > sma_50.last && uptrend_confirmed
    # Calculate position parameters
    entry = close.last
    stop_loss = high[-2] * 1.02  # 2% above doji high
    risk_amount = stop_loss - entry
    target_1 = entry - (risk_amount * 1.5)  # 1.5:1 R/R
    target_2 = entry - (risk_amount * 3.0)  # 3:1 R/R

    puts "  STRONG SELL SIGNAL - Multiple confirmations"
    puts "\nTrade Setup:"
    puts "  Entry Price: $#{entry.round(2)}"
    puts "  Stop Loss: $#{stop_loss.round(2)} (Risk: $#{risk_amount.round(2)})"
    puts "  Target 1 (50% position): $#{target_1.round(2)}"
    puts "  Target 2 (50% position): $#{target_2.round(2)}"
    puts "  Risk/Reward: 1:1.5 and 1:3"

    # Position sizing example (for $10,000 account, 2% risk)
    account_size = 10000
    risk_per_trade = account_size * 0.02
    position_size = (risk_per_trade / risk_amount).to_i

    puts "\nPosition Sizing (2% risk on $#{account_size} account):"
    puts "  Shares to short: #{position_size}"
    puts "  Total position value: $#{(position_size * entry).round(2)}"
    puts "  Maximum risk: $#{risk_per_trade.round(2)}"

    puts "\nFor long holders:"
    puts "  Consider exiting or tightening stops"
    puts "  Pattern suggests trend reversal imminent"

  elsif rsi.last > 60
    puts "  MODERATE SELL SIGNAL - Consider smaller position"
    puts "  Suggestion: Wait for additional confirmation or enter with 50% position"

  else
    puts "  WEAK SIGNAL - Pattern present but confirmations lacking"
    puts "  Suggestion: Monitor for additional confirmation before entry"
  end

elsif pattern[-2] == -100
  puts "Pattern detected in previous period - Monitor position"
  puts "Current price: #{close.last}"
  puts "Entry was: #{close[-2]}"
  puts "Profit/Loss: #{((close[-2] - close.last) / close[-2] * 100).round(2)}%"

else
  # No pattern - continue monitoring
  if close.last > close[-1] && close[-1] > close[-2]
    puts "Uptrend continuing - Watch for Evening Doji Star formation"
    puts "Current price: #{close.last}"
    puts "RSI: #{rsi.last.round(2)}"
  end
end

Similar Patterns¶

Evening Star: Similar three-candle bearish reversal pattern but with a small real body instead of doji on second candle. Evening Doji Star is generally considered slightly more reliable due to the doji showing stronger indecision.
Abandoned Baby: More rare and reliable version with gaps on both sides of the doji. Requires complete gap isolation of middle candle, making it stronger but less frequent.
Dark Cloud Cover: Two-candle bearish reversal pattern. Simpler than Evening Doji Star but may provide earlier signals with potentially lower reliability.

Complementary Patterns¶

Bearish Engulfing: Can follow Evening Doji Star to provide additional confirmation of reversal. The combination of both patterns significantly increases probability of successful reversal.
Shooting Star: Single candle pattern that can appear as the third candle in Evening Doji Star. Recognizing shooting star characteristics strengthens the overall signal.
Morning Doji Star: The bullish counterpart to Evening Doji Star, appearing at bottoms. Understanding both patterns provides complete reversal recognition capability.

Pattern Family¶

The Evening Doji Star belongs to the Star Pattern Family:

Evening Star: Uses small real body instead of doji
Evening Doji Star: Features doji for stronger indecision signal
Morning Star: Bullish reversal at bottoms
Morning Doji Star: Bullish reversal with doji

Evolutionary Relationship: The Evening Doji Star is considered an evolution of the Evening Star pattern, with the doji providing a more specific indication of market indecision. Japanese candlestick analysis traditionally views the doji as a more significant reversal indicator than a small real body.

When to prefer Evening Doji Star: - When seeking higher probability (though less frequent) reversal signals - In markets where doji patterns have proven historically reliable - When risk management requires high-confidence entry signals

When to use Evening Star instead: - For more frequent trading opportunities - In less liquid markets where true dojis rarely form - When backtesting shows Evening Star provides better results for specific asset

Advanced Topics¶

Multi-Timeframe Analysis¶

Enhance pattern reliability using multiple timeframes:

Primary Timeframe Strategy: 1. Identify Evening Doji Star on daily chart (primary trading timeframe) 2. Confirm weekly chart shows uptrend and overbought conditions 3. Use 4-hour chart for precise entry timing after pattern completion 4. Monitor 1-hour chart for early exit signals if pattern fails

Timeframe Confluence: - Pattern on daily + weekly chart = very high probability signal - Pattern on daily, waiting for 4-hour confirmation = reduced risk entry - Pattern on 4-hour aligned with daily resistance = good swing trade setup

Example Multi-Timeframe Approach:

# Check daily for pattern
daily_pattern = SQA::TAI.cdl_eveningdojistar(daily_open, daily_high, daily_low, daily_close)

# Confirm weekly trend
weekly_sma = SQA::TAI.sma(weekly_close, time_period: 20)
weekly_uptrend = weekly_close.last > weekly_sma.last

# Entry on 4-hour confirmation
if daily_pattern.last == -100 && weekly_uptrend
  # Monitor 4-hour chart for entry trigger
  four_hour_pattern = SQA::TAI.cdl_eveningdojistar(h4_open, h4_high, h4_low, h4_close)
  # Enter when 4-hour also shows pattern or bearish confirmation
end

Market Regime Adaptation¶

Pattern behavior varies by market condition:

Trending Markets (ADX > 25): - Pattern most reliable after strong trends - Higher success rate in established uptrends - Use standard penetration (0.3) and standard confirmation

Ranging Markets (ADX < 20): - Pattern less reliable, many false signals - Increase penetration to 0.4-0.5 for stricter detection - Require additional confirmation from oscillators - Consider reducing position size

High Volatility (ATR increasing): - Gaps more common, patterns form more frequently - May need wider stops to avoid premature exit - Pattern completion may span more time - Confirm with volume to separate noise from signal

Low Volatility (ATR decreasing): - True gaps less likely, doji may be weak - Pattern may signal imminent volatility expansion - Earlier entry can capture larger moves - Tighter stops appropriate

Statistical Validation¶

Understanding pattern reliability through statistical analysis:

Historical Success Rates: - Academic studies show 60-65% success rate in trending markets - Success rate drops to 45-50% in ranging markets - Daily timeframe shows better results than intraday - Confirmation with RSI > 70 increases success to 70-75%

Backtesting Considerations:

# Example backtesting framework
def backtest_evening_doji_star(price_data, start_date, end_date)
  trades = []

  price_data.each_with_index do |data, i|
    next if i < 3  # Need at least 3 candles

    pattern = SQA::TAI.cdl_eveningdojistar(
      data[:open], data[:high], data[:low], data[:close]
    )

    if pattern[i] == -100
      entry = data[:close][i]
      stop = data[:high][i-1] * 1.02
      target = entry - ((stop - entry) * 2)

      # Track trade through subsequent data
      trades << {
        entry: entry,
        stop: stop,
        target: target,
        date: data[:date][i]
      }
    end
  end

  # Analyze results
  analyze_trades(trades)
end

Key Metrics to Track: - Win rate (% of profitable trades) - Average win vs average loss - Profit factor (gross profit / gross loss) - Maximum drawdown - Sharpe ratio - Pattern frequency vs opportunity cost

Optimization Tips: - Test across multiple assets and market conditions - Avoid over-fitting to specific time periods - Include transaction costs in calculations - Account for slippage, especially on gaps - Consider different penetration parameters systematically

References¶

"Japanese Candlestick Charting Techniques" by Steve Nison: The definitive Western text on candlestick patterns, includes detailed coverage of Evening Doji Star pattern with historical context and trading applications.
"Technical Analysis of the Financial Markets" by John Murphy: Comprehensive technical analysis reference with section on candlestick patterns and their integration with Western technical analysis.
"Encyclopedia of Candlestick Charts" by Thomas Bulkowski: Statistical analysis of candlestick pattern performance, including success rates and failure rates for Evening Doji Star in various market conditions.
Original Japanese Candlestick Research: Pattern originated in 18^th century Japanese rice trading, documented in various historical texts on Sakata's Five Methods.
Online Resources:
StockCharts.com Candlestick Pattern Reference
Investopedia Technical Analysis Guide
TradingView Pattern Recognition Tools