As a reversal pattern, the Shooting Star could potentially signal that a bullish trend is about to end, and a bearish trend might begin. As such, traders and investors keenly watch for the formation of the Shooting Star pattern as part of their technical analysis.
What does the Shooting star candle look like?
A Shooting Star pattern consists of a candlestick with a small body and a long upper shadow. The small body indicates that there was little price difference between the open and close price, while the long upper shadow shows that the prices extended significantly upwards but then fell, suggesting selling pressure. The colour of the body isn’t necessarily critical; it can be either bullish (green or white) or bearish (red or black).
This pattern gets its name because it resembles a shooting star with its trail extending behind it.
What does this chart pattern suggest?
It appears at the end of an uptrend, signifying that the bulls are losing control over the market. The long upper wick shows that buyers pushed prices up during the session, but sellers took over and pushed prices back down to near where they started.
Wait for confirmation after the Shooting star candle has formed
It’s crucial to note that the Shooting Star pattern should not be used in isolation. It’s a warning sign that things could change, but it doesn’t guarantee that they will. Traders should read the charts further, analyse the market structure to see if it is occurring at a significant point, and wait for further confirmation before acting on this signal. This confirmation could be another bearish candle immediately following the Shooting Star or a gap down.
For instance, if this pattern forms near resistance levels or if other bearish signals are present on technical indicators, then it would strengthen the likelihood of a bearish reversal.
Being aware of its limitations and using it in conjunction with market structure and other technical tools can enhance its reliability and effectiveness.
