A Shooting Star is a single candlestick pattern found in an uptrend.
Candlesticks can mark tops (but are often retested).
A shooting star forms when prices open higher, trade higher, and then close closer to the open.
This bearish reversal candle looks like an inverted hammer, except it is Bearish.
The shooting star pattern is formed by a candle with a short body, little or no lower shadow, and a long upper shadow.
To identify a shooting star candlestick, look for the following criteria:
- Shooting stars do not appear at the end of a downtrend.
- Candlesticks must appear after an uptrend. Being a “shooting star”, it makes sense for the signal to occur at a high following a price surge.
- The candlestick must have a short body.
- The lower shadow should not exist or be very small.
- The upper shadow (which conveys the extent of the price movement) must be very high, at least twice the length of the body.
- The long upper shadow gives the candlestick its name because it resembles a shooting star when combined with the smaller real body and its post-uptrend position.
How to Trade the Shooting Star Pattern
The shooting star is a bearish reversal signal, which means it indicates that the price has reached the top of the current uptrend and will soon fall.
In the previous candle, the bulls had been in control, driving the price higher and into an established uptrend.
But on this trading day, bulls continued to push higher after the opening, but then shorts intervened. The price was pushed lower and closed near the starting point. The bulls have lost control.
To better explain candlestick formation, look for the following characteristics:
- If there is a gap between the previous entity and the current entity, the possibility of a strong reversal is very high.
- The color of the real body does not matter, but a black real body conveys a bearish bias.
- The longer the upper shadow line, the greater the possibility of a reversal.
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