The shooting star candlestick pattern is a 1 candle bearish reversal formation that usually appear after a protracted upside movement. As for many other candlestick patterns, it was firstly introduced to western traders by Steve Nison.
Graphically, a shooting star appear as follow:
The characteristics of the Shooting Star Candlestick Pattern
A shooting star has a narrow body, with a long upper shadow (or wick) that shows repulsion in the market. Lower shadow is absent or very tiny.
The pattern’s characteristics depends on the psychology behind. The upper shadow shows a strong repulsion in the market. Buyers try to push it on an higher level but they can’t win sellers’ action. Eventually, these last are able to push back price action nearby the minimum of the trading session.
Candles psychology explain clearly why the shooting star is a bearish reversal candlestick formation:
Trade in the context – The importance of Support and Resitance
In technical analysis context is probably the most important consideration you need to do before entering in a new trade.
We cannot trade each shooting star who appear in the market. Rather, by combining support and resistance analysis, we can improve our overall profitability. Look at the example below:
A shooting star candlestick pattern works best nearby resistance zones. These areas are clusters of selling orders in which there is an unbalance in market forces. Selling pressure is higher than buying one producing a strong price repulsion.
How to Trade the Shooting Star
Usually traders enter short when price breaks below the minimum of this pattern, by entering in the first candle after the shooting star:
Nonetheless, sometimes shooting star may provide us with a buying opportunity. Look a the picture here below:
In a first attempt, price breaks below previous’ candle minimum. Then, it retraces until it breaks above shooting star’s maximum. Since we know that the upper shadow represent a strong repulsion in the market, we can say that once price is able to invalidate this level, then we are experiencing a strong signal of strength in price action.