Shooting Star

What Is a Shooting Star?

A shooting star is a bearish candlestick with a long upper shadow, next to zero lower shadow, and a small real body close to the low of the day. It shows up after an uptrend. Said in an unexpected way, a shooting star is a type of candlestick that forms when a security opens, advances essentially, however at that point closes the day close to the open once more.

For a candlestick to be viewed as a shooting star, the formation must show up during a price advance. Likewise, the distance between the highest price of the day and the opening price must be over two times as large as the shooting star's body. There ought to be practically zero shadow below the real body.

What Does the Shooting Star Tell You?

Shooting stars demonstrate a potential price top and reversal. The shooting star candle is best when it forms after a series of at least three successive rising candles with higher highs. It might likewise happen during a period of overall rising prices, even on the off chance that a couple of recent candles were bearish.

Following the advance, a shooting star opens and afterward rises unequivocally during the day. This shows a similar buying pressure seen over the last several periods. As the day advances, however, the sellers step in and push the price down to approach the open, eradicating the gains for the afternoon. This shows that purchasers lost control by the close of the day, and the sellers might dominate.

The long upper shadow addresses the purchasers who bought during the day yet are presently in a losing position in light of the fact that the price dropped back to the open.

The candle that forms after the shooting star is what confirms the shooting star candle. The next candle's high must remain below the high of the shooting star and afterward continue to close below the close of the shooting star. In a perfect world, the candle after the shooting star gaps lower or opens close to the prior close and afterward moves lower on heavy volume. A down day after a shooting star affirms the price reversal and shows the price could keep on falling. Traders might hope to sell or short sell.

On the off chance that the price rises after a shooting star, the price scope of the shooting star might in any case act as resistance. For instance, the price may consolidate in the area of the shooting star. Assuming that the price at last keeps on rising, the uptrend is as yet intact and traders ought to lean toward long positions over selling or shorting.

Illustration of How to Use the Shooting Star

In this model, the stock is rising in an overall uptrend. The uptrend speeds up just prior to the formation of a shooting star. The shooting star shows the price opened and went higher (upper shadow) then closed close to the open. The following day closed lower, assisting with affirming a potential price move lower. The high of the shooting star was not surpassed and the price moved inside a downtrend for the next month. In the case of trading this pattern, the trader could sell any long positions they were in once the confirmation candle was in place.

The Difference Between the Shooting Star and the Inverted Hammer

The inverted hammer and the shooting star appear to be identical. The two of them have long upper shadows and small real bodies close to the low of the candle, with next to zero lower shadow. The difference is setting. A shooting star happens after a price advance and denotes a potential defining moment lower. An inverted hammer happens after a price decline and denotes a potential defining moment higher.

Limitations of the Shooting Star

One candle isn't all that critical in a major uptrend. Prices are continuously revolving, so the sellers taking control for part of one period — like in a shooting star — may not turn out to be critical by any means.

For this reason confirmation is required. Selling must happen after the shooting star, albeit even with confirmation there is no guarantee the price will keep on falling, or how far. After a short decline, the price could keep progressing in arrangement with the longer-term uptrend.

Use stop losses while utilizing candlesticks, so when they don't resolve your risk is controlled. Likewise, think about involving candlesticks related to different forms of analysis. A candlestick pattern might take on more significance in the event that it happens close to a level that has been considered important by different forms of technical analysis.

Highlights

• On the off chance that the price rises after a shooting star, the formation might have been a false signal or the candle is denoting a potential resistance area around the price scope of the candle.
• Traders commonly hold on to see what the next candle (period) does following a shooting star. On the off chance that the price declines during the next period they might sell or short.
• A shooting star happens after an advance and shows the price could start falling.
• The formation is bearish on the grounds that the price attempted to rise altogether during the day, however at that point the sellers dominated and pushed the price down toward the open.