The Shooting Star Candlestick Pattern
The Shooting Star candlestick pattern is a type of Hammer candlestick pattern that occurs at the top of an uptrend. It is a reversal pattern that indicates the start of a downtrend. It can be used as a bearish entry point.
In this article you will learn:
- What is a Shooting Star candlestick pattern
- How to identify and interpret a Shooting Star candlestick pattern
- Trading techniques after confirming a Shooting Star candlestick pattern
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What is a Shooting Star candlestick pattern?
The Shooting Star is a candlestick pattern that occurs that occurs after a downtrend. It is a type of Hammer and represents a bearish trend reversal.
At market open, sellers push the price of the stock down to the low of the day. At this point, buyers step in and push the price of the stock back up to the high of the day where the market then closes. This is considered to be bearish because there is hesitation in buying pressure to continue the uptrend due to the high selling pressure early in the trading session.
How to Identify a Shooting Star Candlestick Pattern
Because the Shooting Star pattern occurs in an uptrend, our suggestion is to look at the previous 3 trading periods to verify if the uptrend is confirmed. To confirm a Shooting Star, the candlestick must have a large upper wick, typically twice the size of the body. Also, there must be little to no lower wick, and the body should be less than average body size of the previous 20 trading periods.
Trading Techniques for the Shooting Star Candlestick Pattern
It is recommended to wait one trading day to confirm the Shooting Star pattern. If the following day is a red candle, this could indicate a bearish reversal in the stock and a potential bearish entry point.