Shooting Star Candlestick Pattern
A shooting star candlestick is a bearish candlestick with a lengthy upper shadow, little or no lower shadow, and a little actual body at the day’s low. It occurs along with an upward trend. A shooting star is a candlestick that emerges when a stock opens, advances considerably, and finishes the day near the open.
A candlestick must form a shooting star during a price gain to be labeled a shooting star. Furthermore, the difference between the maximum price of the day and the starting price should be more than twice the shooting star’s body size. There should be very little or no shadow beneath the actual body.
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Shooting Star Candlestick Meaning
Shooting star candlestick definition: In technical analysis, a shooting star candlestick pattern is seen as a form of reversal pattern, indicating a price decline. The Shooting Star has a similar appearance as the Inverted Hammer, but it is encountered in an upswing rather than a downturn and has distinct connotations. It consists of a candle with a tiny lower body, little or no lower flame, and a tall upper wick that is at least twice the size of the lower body, similar to the Inverted hammer.
The shooting star candlestick pattern’s long top wick suggests that purchasers drove prices up a little bit when the candle got created but was met with selling pressure, which drove the price backward for the period to close around where they opened.
Because this occurred during an upswing, the selling pressure is interpreted as a possible reversal signal. When traders see this pattern, they generally look for a lower opening in the next session before deeming the sell signal real. As with the Inverted Hammer, most traders will look for a longer wick to indicate a higher possible reversal and will look for a rise in the amount when the Shooting Star appears.
What Does the Shooting Star Tell You?
A Shooting star can suggest the possibility of a price peak and reversal. It is most effective when a shooting star candle appears after three or more successive rising candlesticks with higher highs. It can even happen during a time of overall price increases, even if the last few candles have been bearish.
Following the approach, a shooting star appears and then climbs dramatically throughout the day. It demonstrates the same purchasing pressure as witnessed in previous times. However, as the day proceeds, the sellers jump in and force the price down slightly to around the open, wiping out the day’s profits. It shows that buyers have lost control by the end of the day, and sellers can take over.
The extended upper shadow shows purchasers who purchased during the day but seem to be losing since the price has returned to the open. The candle that forms following the shooting star confirms the shooting star candle. The shooting star’s high should be above the next candle’s high and then close below the shooting star’s close. The candle that follows the shooting star should gap lower or open around the previous close and then move down significantly.
A down day following a shooting star confirms the price turnaround and signals that the price may continue to plummet. If the price climbs after a shooting star, the shooting star’s price range may still operate as resistance. For instance, the price may concentrate near the shooting star. If the price eventually rises, the uptrend remains intact, and traders should favor stock holdings, overselling, or shorting.
Example of How to Use the Shooting Star
In currency pair trading, you might be able to witness the shooting star pattern. These multiple candlesticks show the currency pair rising fast, but suddenly one candlestick (the one between the two red arrows pointing downwards) creates a shooting star pattern. There is a long upper tail, a considerably shorter lower tail, and a significantly short body, with the price closing lower than the candle’s initial price.
rnIn this case, the shooting star pattern was accurate in its forecast.
The price falls sharply to the downside throughout the next three candlesticks before resuming the overall upward trend. After witnessing the shooting star pattern, a trader who sold short may have profited swiftly on a short-term intraday deal.
In this scenario, the shooting star predicted just a short-term reversal. On the other hand, the pattern might occasionally suggest a long-term reverse from an entire uptrend to an overall decline.
How To Use The Shooting Star?
- In currency pair trading, you might be able to witness the shooting star pattern. These multiple candlesticks show the currency pair rising fast, but suddenly one candlestick (the one between the two red arrows pointing downwards) creates a shooting star pattern.
- There is a long upper tail, a considerably shorter lower tail, and a significantly short body, with the price closing lower than the candle’s initial price. In this case, the shooting star pattern was accurate in its forecast.
- The price falls sharply to the downside throughout the next three candlesticks before resuming the overall upward trend.
- After witnessing the shooting star pattern, a trader who sold short may have profited swiftly on a short-term intraday deal. In this scenario, the shooting star predicted just a short-term reversal.
- On the other hand, the pattern might occasionally suggest a long-term reverse from an entire uptrend to an overall decline.
Benefits Of Using Shooting Star Candlestick Pattern
In order to spot future price trend reversals, traders frequently employ the shooting star candlestick pattern, a popular technical analysis technique. The following are a few benefits of employing the shooting star candlestick pattern:
1. Clearly Visible
Due to its ease of understanding, the shooting star pattern may be useful for both seasoned and novice technical traders. As long as traders adhere to the pattern description, it is simple to identify a probable shooting star candlestick.
2. Reversal Indicator
When it appears during an uptrend, the shooting star pattern is seen as a bearish reversal indicator. It implies that there is less demand from buyers and that sellers may begin to dominate the market. This pattern might give traders a heads-up that a trend reversal could be on the horizon.
3. Risk-Reward Balance
Traders may more precisely define their risk-reward balance using the shooting star pattern. Traders can reduce possible losses in the event that the pattern does not work out by placing stop-loss orders above the high of the shooting star candle.
4. Application to Different Timescales
The shooting star pattern may be used for a variety of timescales, from intraday trading to longer-term swing trading or investment.
How To Spot Shooting Star With Resistance Pattern
You must watch the price movement and the surrounding context on the chart to identify a shooting star candlestick pattern with a resistance pattern. Here’s how to recognise this pairing:
- The shooting star’s extended upper shadow suggests that the market was tested to determine where the supply and resistance were.
- Bears started to drive prices lower as soon as the market reached the region of resistance, the day’s highs, and the day ended close to the starting price.
- A candlestick pattern called the “shooting star” enables traders to visually identify the locations of supply and resistance.
- The shooting star pattern after an upswing might inform traders that the uptrend might be gone and that long positions might be scaled back or fully terminated.
Limitations of the Shooting Star
- The costs frequently fluctuate. One candle is therefore not very noteworthy during an upswing.
- A confirmation is necessary since bears in control for a portion of one period, such in a shooting star, may not be important at all.
- It has also been observed that prices continue to rise in keeping with the long-term upward trend following a small decrease.
- When employing candlesticks, setting stop losses is one technique to reduce risk.
- The presence of a candlestick pattern close to a level that is regarded as noteworthy by other types of technical analysis should be taken into consideration.
The Difference Between the Shooting Star and the Inverted Hammer
The inverted hammer and the shooting star have the same appearance. Both possess lengthy upper shadows and little actual bodies around the candle’s lowest point, with little or no bottom shadow. The distinction is one of context. A shooting star appears after a price gain and indicates a possible downward turning point. An inverted hammer appears after a price decrease and indicates a future upward trend.
Conclusion
A shooting star candlestick is a technical indicator structure or pattern seen in candlestick charts. It is seen as indicating a bearish reversion downward.
A shooting star pattern is only valid after a recognized upswing of some time and when it happens at or close to the highest possible price in the latest market action.
In candlestick charting, the shooting star pattern is simply one of the numerous indicators of future market reversals. Engulfing candles, the hanging man pattern, and Doji candlestick formations are examples of reversal patterns. Hope you found this article helpful in understanding what a shooting star candlestick is and discovering various factors.
Frequently Asked Questions (FAQs)
If you are confused by candlestick patterns or are new, intentional practice is the best method to master them. There is no other efficient method to accomplish this than using a trading simulator that includes a real trading environment. To that end, we’ve compiled a list of reference guides for the greatest bullish and bearish candlestick formations to aid you along the path. Check them out and grab our cheat sheets if you haven’t already.
In a large upswing, one candle isn’t all that noteworthy. Prices are always fluctuating, so sellers seizing control for a portion of one period—as in a shooting star—might not be important. That is why verification is necessary. Sales should occur after the shooting star, but even with confirmation, there is no certainty that the price will continue to decline or how far it will fall.
Even though the shooting star candlestick appears in a bullish cycle, it’s a reversal pattern. This simply makes it a bearish indicator as it indicates the start of a bearish trend after a bullish trend.
Even though both the shooting star candlestick and the inverted hammer pattern are reversal patterns, they are the exact opposite of each other. The shooting star candlestick depicts the start of a bearish trend after a bullish trend. On the other hand, the inverted hammer candlestick pattern is utilized to know if the market can go through a reversal after a downtrend. The inverted hammer candlestick pattern occurs at the end of a downtrend and significados the start of a bullish trend.
The shooting star candlestick pattern is a good reversal indicator and can be very helpful if spotted at the right time. This said, there’s no definite proof that it’ll always work. A shooting star candlestick could appear during a small interval of the day, but the trend might not change, continuing the uptrend. There could also be a situation where after the occurrence of the shooting star candlestick, there could be a small drop in the price with an even higher high that is achieved. In such a case, you could say it worked for the intraday or short-term investors, but a long-term investor could miss out on the returns he was hoping to make from the trade due to the indicator.