The Shooting Star candlestick formation is a single candle reversal formation and a significant bearish reversal candlestick pattern occurring at the top of uptrends. It is formed when the price is pushed higher and immediately rejected lower so that it leaves behind a long wick to the upside.
The Shooting formation has a small real body (ideally red / black) and a long upper shadow, generally defined as at least twice the length of the real body.
When a bearish Shooting Star candlestick is formed and it is considered a stronger formation because the bears were able to reject the bulls completely plus the bears were able to push prices even more by closing below the opening price.
The Shooting Star formation is considered less bearish when the real body is green / white. The bulls were able to counteract the bears, but were not able to bring the price back near the session high.
The long upper shadow of the Shooting Star implies that the market tested higher levels to perhaps find where resistance and supply was located. When the market found the area of resistance, the highs of the day, bears began to push prices lower, ending the day near the opening price. Thus, the bullish advance upward was rejected by the bears.
In the first chart, the market began the day testing to find where supply would enter the market. The stock price eventually found resistance at the high of the day. In fact, there was so much resistance and subsequent selling pressure, that prices were able to close the day lower than the open, a bearish sign. Subsequently, it was confirmed the following session on a gap and close lower.
The second chart displays a Shooting Star with a green real body following a bullish gap higher. This bearish formation would likely not be considered as bearish due to these circumstances.
The Shooting Star is an extremely helpful candlestick pattern to help traders visually see where resistance and supply is located. After an uptrend, the Shooting Star pattern can signal to traders that the uptrend could be over and that long positions should probably be reduced or completely exited.
However, other indicators should be used in conjunction with the Shooting Star candlestick pattern to determine sell signals, for example, waiting a day to see if prices continued falling or other chart indications such as a break of an upward trendline.
Generally speaking, whether aggressive or conservative, a trader should wait for a confirmation candle before entering.
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