A Shooting Star is a single candlestick pattern that is found in an uptrend.
The candlestick can mark a top (but is often retested).
A Shooting Star is formed when price opens higher, trades much higher, then closes near its open.
This bearish reversal candle looks like the Inverted Hammer except that it is bearish.
The Shooting Star pattern is formed by a single candle with a short body, little or no lower shadow, and a very long upper shadow.
To identify a Shooting Star candlestick, look for the following criteria:
- A Shooting Star won’t occur at the end of a downtrend.
- The candlestick must occur after an uptrend. As a “Shooting Star”, it makes sense for the signal to occur high up after the price has gone up sky high.
- 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 tall, at least twice the length of the body.
- The long upper shadow gives the candlestick its name because, when combined with the small body and its location after an uptrend, it resembles a shooting star.
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 its current uptrend and will fall soon.
During the previous candles, the bulls have been in control, pushing the prices higher and into an established uptrend.
But during the current session, the bulls continued pushing after the market’s open, but then the bears stepped in. The price was driven back down, and it closed near its starting point. The bulls have lost control.
To better interpret the candlestick’s formation, look for the following characteristics:
- If there is a gap between the body of the previous period and this period, the likelihood of a strong reversal is high.
- The color of the body is unimportant, but a black body conveys bearish bias.
- The longer the upper shadow, the higher the potential for a reversal.