What are Shooting Star Candlesticks?
It is a reversal candlestick pattern with long upper shadow and no lower wick. It is a simple candlestick pattern made of a single candleline. They are bearish in nature and appear at the end of an upper trend.
It has its name because of its resemblance to the meteor falling from the sky. It may also mean that if you do not respect this signal and still hold on to the position, then you are going to fall from sky.
Shooting Star candles typically appear at the end of an up trend. They have a small real body at the lower end of the candle. The body may be black or white. They have a long upper wick which is double the height of the real body. The lower wick may be absent or very short.
It is formed because of the bears not allowing the bulls to push the price high. The stock is in an up trend and at a crucial resistance level. After opening, the buyers push the prices up by creating demand. Intraday traders who are also in the mood of bullishness, add to the demand.
But later in that time period the sellers increase in number and the supply for the stock increases. Any amount of buying is neutralized by equally increased selling at the higher level. As supply increases more than the demand the price moves down and closes near the opening, either just below or just above the opening price.
This results in a small body and a long upper shadow with no or a very small lower shadow, which looks like a Shooting Star.
Study the chart given below.
The market opens and continue its up trend in the direction of ongoing trend. At the upper end of the trend the buying ceases. The trend reverses and the supply increases pulling the price lower.
The presence of resistance, lack of bullish white candle with a close above the resistance, presence of small body - all signify the action of bears. There is short selling by bears as well as profit booking by bulls.
This should hint us the cessation of the up trend. Downtrend is likely to start.
While every one is euphoric about the bull phase, you should feel cautious about the hidden bears not allowing the price to move decisively beyond the resistance area.
Next day's price movement confirms whether the trend is reversed or continuing. You should cover your long position and may plan to short the stock.
Shooting Star candle with a black body is more bearish than the one with a white body.
Shooting Star alone is not an indication to go short. One should always wait for the following confirmation bearish black candle. Then go short below the low of this candlestick.
Candlesticks with similar features, when they appear at the end of a down trend are called as Inverted Hammer candlesticks which are bullish in nature. So the name changes depending on, whether they appear at the end of an up trend or a down trend.
Read about it by clicking on the link below.
There are many more simple candlestick patterns used in stock analysis. Some of them are listed below. You may click on the name of each pattern listed below to learn and understand more about them.
White Candles are bullish lines in candlestick and candlevolume charts. They signify that the closing price is higher than opening price for that time period.
Black Candles or black candlesticks are bearish lines in candlestick and candlevolume charts. They signify that the closing price is lower than opening price for that time period.
Long lower shadow of a candlestick indicates that the bears are loosing power and bulls are gaining power in that time period.
Long upper shadow of a candlestick indicates that the bulls are loosing power and bears are gaining power in that time period.
A Candlestick Hammer is a reversal candle pattern with long lower shadow and no upper wick. They are bullish in nature.
Inverted Hammer is a bullish reversal candlestick pattern. They occur at the bottom of a down trend. It is so named because a Candlestick Hammer, which is also a bullish reversal pattern is placed upside down.
Shooting Star is a bearish reversal candlesticks pattern. They occur at the top of an up trend.
A Hanging Man candlestick is a reversal candle pattern with long lower shadow and no upper wick. They are bearish in nature.
Spinning Top candlestick is a candle pattern with small real body. They represent the areas of uncertainty.
Doji candlestick is a candle pattern with out a real body. They represent the areas of uncertainty.
Dragonfly Doji candlestick is a candle pattern with out a real body and upper shadow. They represent the areas of uncertainty.
Gravestone Doji candlestick is a candle pattern with out a real body and lower shadow. They represent the areas of uncertainty.
Marubozu White candlestick is a white candlestick with out shadows. They represent strong bullish trend in the market.
Marubozu Black candlestick is a black candlestick with out shadows. They represent strong bearish trend in the market.
These are hybrid created by combining the features of Equivolume charts and Candlestick charts. The effect of high volume is pictorially emphasized.
Counter part of this pattern in a candle chart is Inverted Hammer.