Shooting Star patterns are interpreted as a bearish reversal pattern. Shooting stars appear in up trends but are a bearish candle. These patterns look just like inverted hammer candlesticks but are found near resistance levels. They are typically red or black on stock charts. Look for price to fall below candle to confirm bearish direction.
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What Are Shooting Star Patterns?
A shooting star candlestick is typically found at the peak of an uptrend or near resistance levels. Shooting star candlesticks consist of a smaller real body with a longer upper wick and no lower shadow. They are typically red or black on stock charts.
They are single day patterns. It opens higher then trades much higher; however ends up closing near open price. It is the bearish answer to the inverted hammer.
They have a small real body with little to now lower wick and a long upper wick. It should be at least two times the size of the real body.
Shooting star patterns indicate that price has reached its peak and a reversal is coming. This pattern is the most effective when it forms after a series of rising bullish candlesticks.
Each bullish candlestick should create a higher high. Their upper wick is formed as buyers drive price up at some point during the day. Selling pressure pushes price back down so that it closes near the opening.
As price is rising during those green day, buyers start getting impatient wanting a pullback so they can get in a better entry. The stock is already in a bullish uptrend so price has been rising for awhile.
Buyers cause a buying frenzy causing the upper wick to form Shorts see the weakness and capitalize on said opportunity. Pushing price back down.
Confirmation
Confirmation of shooting star patterns are very important. The candle that forms after the shooting star is what confirms the pattern. The next candle cannot make a higher high.
Otherwise the reversal is null and void. The close of the new candle must also close under this pattern.
The second candle closing lower, tells that the buyers either have to hold and wait it out or cut their losses.
Greed usually turns to fear…that is where the panic selling starts. Traders can also see on the chart as large bearish candlesticks form; letting traders know the bears are in control for now. This is why trading with an experienced group of traders can be an advantage. Check out our trading rooms to see what the entire team is watching everyday.
How to Trade Shooting Star Candlesticks
- Can go short at the break of the low and use a close above high as a stop
OR - Go long when price breaks above the high; then use a candle’s close below the low as a stop
