The shooting star candlestick
The mirror image of the hammer: small body near the bottom, little lower shadow, an upper shadow at least twice as long as the body, at the end of an uptrend. Buyers first pushed the price up, then sellers dragged it back down.
The shooting star appears after a rise and counts as a possible first sign that buyers are running out of strength.
What it's about
Within one day the price rises sharply, then falls back and closes near its opening price. The long upper shadow shows how high the price briefly reached before sellers took over.
How to recognise it
- A short body in the lower third of the trading range.
- An upper shadow at least twice as long as the body.
- Little or no lower shadow.
- The pattern sits after a clear uptrend, otherwise the shape means nothing.
What usually happens afterwards
Here too, only the next candle confirms the pattern. If it closes below the shooting star, many take that as a reason to lock in gains or hedge a position. Without that confirmation it stays just one striking candle.
Where it misleads you
The same shape also appears without a prior uptrend and means nothing then. And a strong trend quite often simply continues after a shooting star, with the long shadow having been just a brief hesitation.
An example trade with made up numbers
Months ago Selin bought 100 shares at €20. The price rises to €34, forms a shooting star there and closes below it the next day at €32.50. Most people don't use a falling pattern for short selling at all. They take it as a reason to sell or protect an existing position. So does Selin.
The decision: Selin sells all 100 shares at €32.80. After a €1 fee and a little spread, Selin locks in about €1,277 in profit.
If the pattern holds: The stock falls to €27 over the following weeks. Compared with holding on, Selin avoided about €580 in lost value.
If it was a false breakout: The stock turns again and rises to €39. Selin misses out on about €620 in extra profit she would have had by holding.
A single shooting star wasn't a reason for Selin to panic, but it was a reason to bank a gain that had already run well.
The name describes the picture: a shooting star that briefly flares up and then burns out. In Japanese terminology the shape stands for buyers failing to hold the high they reached.
The mirror shape at the end of a downtrend is called an inverted hammer and, despite the identical shape, is read as a possible turning point upward rather than downward. Here too, only the context before it decides the reading.
Summary
- A shooting star sits at the end of an uptrend, small body at the bottom, long upper shadow.
- Only a falling confirmation candle turns it into a usable signal.
- The same shape after a downtrend is called an inverted hammer and means something different.
Did you get it?
How do you recognise a shooting star?
Small body at the bottom, upper shadow at least twice the body length, after an uptrend.
What makes the confirmation?
A following candle that closes below the shooting star.
What is the same shape called at the end of a downtrend?
Inverted hammer, and there it's read as a possible turning point upward.
Sources and further reading
- StockCharts ChartSchool, Shooting Star. View source ↗
- Steve Nison: Japanese Candlestick Charting Techniques, 2nd edition 2001.
Related
- HammerCandlestick pattern
- Bearish engulfingCandlestick pattern
- What chart patterns can doLesson