For instance, shooting stars might be less reliable during traditionally low-volume periods like summer months or holiday seasons. Meanwhile, they might be more reliable at the end of financial quarters when institutional investors rebalance portfolios. Both candlesticks have petite little bodies (filled or hollow), long upper shadows, and small or absent lower shadows. The kicker formation is a reversal pattern that starts with a candle in the direction of the primary trend, followed by a gap contrary to the trend. In such cases, the shooting star candle is likely to have an even bigger upper candlewick. This implies that the price is about to reverse with even bigger strength.

You can use this plan for as long as you like before deciding to upgrade to a more advanced plan for additional ATAS tools. You can also activate the Free Trial at any time, giving you 14 days of full access to all the platform’s features. This trial allows you to explore the benefits of higher-tier plans and make a well-informed decision about purchasing. After bouncing back from the day’s low (1), the price encountered a block of sell limit orders near the previous local highs (highlighted in red). The price broke above the psychological level of 40,000 points, igniting bullish enthusiasm among buyers.

This article will break down the Shooting Star Candlestick pattern, guiding retail traders on how to spot, interpret, and trade this pattern effectively. A trader following the classic pattern might have considered opening a short position after several days of price increases. The candle has a small body at the lower end, with an upper shadow that is typically at least twice the length of the body. On the one hand, those trading breakouts of the previous high went long. On the other hand, short positions were closed out by stop-loss orders placed above the Shooting Star. An Inverted Shooting Star candlestick is essentially an Inverted Hammer, typically indicating bullish reversal potential when occurring after a downtrend.

A shooting star candlestick’s structure represents the rapid downward movement of the price toward the close of the market. For a candlestick pattern to be considered a shooting star, the upper wick must be at least twice the length of the body of the candlestick. Another differentiation is the bullish hammer, which is exactly the opposite of a shooting star candlestick formation. The bullish hammer appears after a price correction or downtrend and indicates a trend reversal towards the upside. Here, the position of the bullish hammer candlestick formation is perfectly positioned, although the candlestick’s body is quite small.

However, they differ depending on when they occur and the trading signal they imply. At the start of the period, buyers push the price significantly higher, demonstrating continued buying pressure. However, as the period progresses, sellers step in and drive the price back down towards the open, erasing the gains made earlier in the day. This shift indicates that buyers have lost control by the session’s close, and sellers are gaining dominance. This example shows that the classic approach to trading the Shooting Star pattern — entering a short position with a stop above the pattern — can be risky. It also demonstrates that footprint charts provide a detailed view of the struggle between buyers and sellers.

Investors who make trading strategies solely based on a single shooting star candlestick pattern expose themselves to the risk of incurring losses through false signals produced. It appears after an uptrend and indicates that the market could be topping out. The pattern is characterized by a small body at the lower end of the trading range, with a long upper shadow. This suggests that sellers are starting to outweigh buyers, potentially leading to a downward shift in market control. The Bearish Shooting Star warns of a potential end to bullish momentum, urging traders to consider securing profits or establishing short positions.

First and foremost, the timeframe is a very important factor for the significance of candlestick analysis. The higher the timeframe, the more significant is the candlestick pattern. For example, a shooting star in the weekly chart is more bearish than a shooting star in the 4-hour chart. Trading the Shooting Star pattern effectively involves identifying potential price reversals. However, one must be cautious and look for confirmation in subsequent candles or overlapping technical analysis tools. In my years of trading, I’ve learned that these patterns, while indicative, are not standalone signals and require corroboration.

Traders commonly wait for the consecutive candlestick pattern when they spot a shooting star pattern to confirm the price declines. They consider options such as selling or shorting if the pattern following a shooting star also indicates a price drop. Shooting star patterns, thereby, help traders make trading decisions based on upcoming market trends. Shooting star candlesticks signify the start of a bearish market trend where the prices start to decline.

1. The price then, drops to a level very close to the opening price of the security, making the body of the candlestick very small.
2. A short lower shadow, wick or tail is formed when the sellers push the price below the opening price.
3. The pattern is bearish because we expect to have a bear move after a Shooting Star appears at the right location.
4. The pattern should be seen as a signal that the trend may be reversing from bullish to bearish.
5. If the price moves quickly in your favor, consider moving your stop loss to break even.

The high of the shooting star wasn’t surpassed, and the price moved lower in a sluggish downtrend for the next month. When trading this pattern, the trader might sell their long positions once the confirmation candle or a lower close the day following the pattern is in place. While the candlestick formation implies potential reversal prospects, it cannot be used in isolation to make a trading decision. Once the Shooting Star emerges, it is important to wait for a conformation candle to be sure a reversal falling star candlestick is in play. The next candle should be bearish and appear on heavy volume to ensure that bears have overpowered bulls and are set to push prices lower.

Anatomy of a Shooting Star Candlestick

The body is small with a tall upper shadow and little or no lower shadow. A gap, which looks tiny in this case, exists between the bodies of the two candles.In this example, price breaks out upward when it closes above the top of the candle pattern. It is important to acknowledge that one candle is often not meaningful enough to estimate the chances of a potential reversal.

1. All ranks are out of 103 candlestick patterns with the top performer ranking 1.
2. Shooting star candlesticks are one of the most reliable candlestick patterns.
3. In addition, a hanging man serves as a stronger reversal signal than a shooting star.
4. Conversely, if it occurs after a downtrend, it can be an indication to exit short positions.
5. As an example of how shooting star candlestick patterns are used in trading, let us consider the price chart below.
6. Trading the financial markets carries a high level of risk and may not be suitable for all investors.

Shooting Star vs Hammer

Sometimes, the patterns following the shooting star do not reflect the trend reversal that the shooting star implied. It is to overcome the false signal limitation that most traders prefer to wait for the pattern that follows a shooting star before making trading decisions. The third main advantage of shooting star candlesticks is their usefulness in helping predict upcoming price trends. By using shooting star candlesticks, investors are made aware of upcoming bearish trend reversals and they can use this knowledge to plan their investment and trading strategies accordingly. A shooting star candlestick is structured with a real body, a long upper tail or wick and a short or no lower tail or wick.

Its purpose was to mislead remaining bulls and trap them before a price decline. Tom Williams, the creator of the VSA strategy, believed that smart money uses such patterns to weaken support levels (in this case, 84.60) before a bearish breakout. While the second candle visually meets the Shooting Star criteria, it appeared after a range and represents a different market situation. In my trading experience, the Shooting Star has been instrumental in providing early warnings of market shifts, allowing for timely adjustments in trading strategies. It’s also a great educational tool for beginners, teaching them to read and interpret market signals.

Apple (AAPL) Stock Ends the Year Near Record Highs

A shooting star opens with an advancing price as there is high demand for the security and buyers continue to purchase the security. Towards the end of the day, however, the price is driven down to a level below or close to the opening price. A short lower shadow, wick or tail is formed when the sellers push the price below the opening price. Shooting star patterns are of two types red shooting stars and green shooting stars. A Shooting Star is a candlestick pattern formed when currency pair prices open, increase immediately, and then close near the opening price, indicating a downtrend reversal.

How to Trade the Shooting Star Pattern

First, buyers are enjoying their gains as the stock shoots to a climactic high. As this euphoric moment begins to set in, short traders begin to sell the stock on a flurry of buy orders. The overall performance rank is mid list at 52, where 1 is best out of 103 candlestick types. The best average move 10 days after the breakout is a decline of 4.93% in a bear market.That ranks just 31.