A Quick Overview of Shooting Star Pattern
The shooting star is similar to the Inverted Hammerin shape, but it is developed in an upward trend, with a short bottom body and a long top shadow.Like a star descending to the ground, the market will usually begin slightly higher and climb to an intra-day high before closing at a price just above the open. According to Bulkowski, this reversal predicts lower prices with an 60% accuracy rate.
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A shooting star is a bearish candlestick with a lengthy upper shadow, a small real body at the day's low, and little or no lower shadow. After an uptrend, it appears. A shooting star, to put it another way, is a sort of candlestick that appears when a security opens, advances considerably, and then finishes the day near the open.
The pattern's psychology begins with an ascending trend that leads to a green candle. The presence of a green candle indicates that buying demand is assisting in the price increase. The next day, the price rises to a new high, but then falls sharply to close around the day's low. Because of the large overhead shadow, the rally may be unable to continue, and a negative turn may occur. In many circumstances, a downturn occurs, but it isn't severe enough to force price to reverse (i.e., it fails to close below the low of the first candle). Before that happens, the price usually continues its upward path.
- After a gain, a shooting star appears, indicating that the price may begin to decline.
- Because the price attempted to increase considerably during the day, sellers grabbed control and pulled the price back down approaching the open, the formation is bearish.
- Following a shooting star, traders usually wait to observe what the next candle (period) performs. They may sell or short if the price falls during the next term.
- If the price increases following a shooting star, the creation might be a misleading indication, or the candle could be indicating a potential resistance region around the candle's price range.
A shooting star candlestick must emerge during a price gain to be labeled a shooting star. Furthermore, the gap between the day's highest price and the opening price must be more than double the size of the shooting star's body. Below the real body, there should be little to no shadow.
Consider the following factors to determine whether the candlestick pattern is a'shooting star.'
- The market is on the rise.
- The first candle is a tall bullish uptrend candle.
- Second candle is a small-bodied red or green candle towering higher shadow and little or no lower shadow.
- The color of the second candle is unimportant.
Shooting stars imply a price peak and reversal may be approaching. When the shooting star candle appears after three or more consecutive rising candles with higher highs, it is most effective. Even if a few recent candles were bearish, it might happen within a period of general increasing prices.
A shooting star appears after the advance and then rises fiercely during the day. This reflects the same buying pressure as in previous periods. However, as the day goes on, the sellers come in and force the price back down to near the open, wiping out the day's profits. This indicates that towards the end of the day, the buyers had lost power and that the sellers were gaining control.
Differences Between 'Shooting Star' and 'Inverted Hammer'
Although the Shooting Star formation resembles the Inverted Hammer in appearance, its timing is considerably different. The Shooting Star appears at the peak of an uptrend (bearish reversal pattern) whereas the Inverted Hammer appears at the bottom of a downtrend (bullish reversal pattern).
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