A shooting star candlestick means that buying momentum has been outpaced by sellers within the period. The pattern only appears during uptrends, and at the outset of the session bulls remain firmly in control – hence the long upper wick. In technical analysis, a shooting star is interpreted as a type of reversal pattern presaging a falling price. The Shooting Star looks exactly the same as the Inverted hammer, but instead of being found in a downtrend it is found in an uptrend and thus has different implications. Like the Inverted hammer it is made up of a candle with a small lower body, little or no lower wick, and a long upper wick that is at least two times the size of the lower body.
So within the session, the market’s price went up to new highs – but was swiftly beaten back, eventually ending up close to where it started. Utilize stop losses when using candlesticks, so when they don’t work out your risk is controlled. Also, consider using candlesticks in conjunction with other forms of analysis. A candlestick pattern may take on more significance if it occurs near a level that has been deemed important by other forms of technical analysis. For this reason, a shooting star candlestick pattern is a very powerful formation. Its shape gives the pattern a lot of attention as the wick always sticks out from the rest of the price action.
Shooting stars summed up
Selling must occur after the shooting star, although even with confirmation there is no guarantee the price will continue to fall, or how far. After a brief decline, the price could keep advancing in alignment with the longer-term uptrend. Prices are always gyrating, so the sellers taking control for part of one period—like in a shooting star—may not end up being significant at all. The Shooting Star is a bearish reversal signal, which means it indicates that the price has reached the top of its current uptrend and will fall soon. It is considered to be one of the most useful candlestick patterns due to its effectiveness and reliability. Therefore, the shooting star’s key strength is its ability to generate a reversal signal.
The shooting star candle is most effective when it forms after a series of three or more consecutive rising candles with higher highs. It may also occur during a period of overall rising prices, even if a few recent candles were bearish. Any sustainable move, with a high close, above the candle’s high, invalidates the pattern.
How to trade the shooting star candlestick
A down day after a shooting star helps confirm the price reversal and indicates the price could continue to fall. Some traders prefer to wait and see whether the next candle is a bearish one, which will confirm that the reversal is taking place. In both cases, an occurrence of the shooting star at the top of an uptrend only generates a signal of an impending reversal and it shouldn’t be taken as a direct trading signal.
- Alternatively, a shooting star appearing at a known level of resistance will also add to the strength of the signal.
- However, other indicators should be used in conjunction with the Shooting Star candlestick pattern to determine potential sell signals.
- For aggressive traders, the Shooting Star pattern illustrated below could potentially be used as a sell signal.
- You should consider whether you can afford to take the high risk of losing your money.
The Shooting formation is created when the open, low, and close are roughly the same price. Let’s pause for a moment to think about what is happening to price for that candle to develop. The price has opened, been pushed higher by the bulls, only for the bears to come back and drive the price down below the open. In the middle part of the chart, the price action starts to move gradually higher.
The Difference Between the Shooting Star and the Inverted Hammer
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A shooting star is a bearish candlestick with a long upper shadow, little or no lower shadow, and a small real body near the low of the day. Said differently, a shooting star is a type of candlestick that forms when a security opens, advances significantly, but then closes the day near the open again. As outlined earlier, a shooting star is a bearish reversal pattern which signals potential change in the price direction. The uptrend is nearing its end as the momentum is weakening, and the sellers are feeling more confident that they can force a reversal in price action. A shooting star candlestick has a short body and a long upper shadow, with little to no lower one.
- If this is broken, then the uptrend may well continue – so placing a stop just above the top of the upper wick can be an effective strategy.
- CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
- Similar to a hammer pattern, the shooting star has a long shadow that shoots higher, while the open, low, and close are near the bottom of the candle.
- The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.
The next candle is a long bearish candle that confirms that a reversal is taking place. Whenever you decide to trade the reversal that was initiated by a shooting star, the stop loss should always be placed above the candle’s high. This is arguably the greatest strength of this pattern, and as it is with a hammer, it gives you a clear level to play against.
Confirming the bear trend
The difference is that the inverted hammer will have a bear run prior to the candle you’re looking for. To trade a shooting star candlestick pattern, you’ll want to short the market and profit from the resulting downtrend. However, it isn’t usually a good idea to sell the moment you see one – you’ll want to confirm the opportunity and set up your risk management first.
What Does the Shooting Star Tell You?
Following the advance, a shooting star opens and then rises strongly during the day. As the day progresses, though, the sellers step in and push the price back down to near the open, erasing the gains for the day. This shows that buyers lost control by the close of the day, and the sellers may be taking over. However, the top of the upper wick can often provide a new level of resistance if the market doesn’t immediately fall in the next couple of sessions.
Both the green and red versions are considered to be shooting stars although the bearish (red) candle is more powerful given that its close is located at the mere bottom of the candle. Again similar to a hammer, the shadow, or wick, should be twice as long as the body itself. For a candlestick to be considered a shooting star, the formation must appear during a price advance. Also, the distance between the highest price of the day and the opening price must be more than twice as large as the shooting star’s body. A shooting star is a single-candle bearish pattern that generates a signal of an impending reversal. Similar to a hammer pattern, the shooting star has a long shadow that shoots higher, while the open, low, and close are near the bottom of the candle.