Shooting Star

• Sentiment: Bearish
• No. of candles: 1
• Direction: Reversal

What Is The Shooting Star Japanese Candlestick Pattern?

The Shooting Star pattern is a bearish reversal pattern that typically forms after an uptrend.

The Japanese candlestick pattern consists of a single candle. This candle has a small body (either bullish or bearish) at the lower end of the price range, a long upper shadow (typically at least twice the length of the body), and a small or nonexistent lower shadow.

The long upper shadow indicates that the market reached a high point during the period but was unable to sustain those levels, suggesting that the bulls are losing control and the bears are gaining momentum.

The pattern signifies that the market tested higher levels but faced selling pressure, with sellers pushing the price back down to close near the opening price.

What Is The Psychology Behind The Bearish Shooting Star Pattern?

The Shooting Star pattern reflects a potential shift in market sentiment from bullish to bearish.

Initially, the bulls are in full control, riding the wave of an uptrend with confidence and optimism. As the price opens near the low of the period and then skyrockets, it seems as though nothing can stop the bulls from pushing the market to new heights.

However, the tides begin to turn as the price reaches its zenith. The bears, who have been patiently waiting for their opportunity, start to push back against the bulls. The once-unstoppable buying pressure begins to wane, and the price starts to slip from its high. This is a crucial moment, as it signifies a shift in market sentiment.

As the price continues to decline, the bears grow bolder and more aggressive. They’re determined to seize control of the market from the bulls, who are now struggling to maintain their grip. By the time the period closes, the price has fallen back to near its opening level, forming a small body with a long upper shadow. This is a clear confirmation of the bearish sentiment that has taken over the market.

The reversal in market sentiment, as demonstrated by the Shooting Star pattern, is a warning sign for bulls. It suggests that the uptrend they’ve been enjoying may be coming to an end and that a downtrend could be on the horizon. At this point, wise traders will be cautious and prepare for a potential shift in market direction.

How To Trade The Shooting Star Pattern?

To trade the Shooting Star pattern, wait for confirmation by a subsequent bearish candle or another technical indicator.

The sell trigger occurs when the price moves and closes below the low of the candle, confirming the pattern.

Place a stop loss order above the high of the candle to protect against potential false breakouts or reversals.

As the price moves in your favor, consider using trailing stops or other risk management techniques to lock in profits and minimize potential losses.

Performance Statistics

The Shooting Star pattern results in a bearish reversal 59% of the time during a bull market, and 60% of the time during a bear market. However, Shooting Star patterns in a bear market result in the best overall performance.

Shooting Stars appear most often when rice is within one-third of a yearly high, yet the best performance comes from when the pattern appears within one-third of a yearly low.

The taller the pattern, the more performance is to be expected. An opening gap following the appearance of a Shooting Star improves performance.

Interestingly, bull market Shooting Stars perform the best with high volume, while bear market Shooting Stars perform the best with low volume.

Black-bodied Shooting Star patterns historically perform better than white-bodied candles. A white-bodied candle could be a sign of an upward breakout in a bull market.

Additional Tips

While the Shooting Star pattern can be a reliable bearish reversal signal, it is essential to use it in conjunction with other technical indicators and chart patterns to confirm the trend change.

Evaluate the context: The Shooting Star pattern is more reliable when it appears after a prolonged uptrend and at key resistance levels.

Manage risk: Always use stop losses to protect your capital and limit potential losses.
Combine with other analysis: Use the Shooting Star pattern in conjunction with other technical indicators, such as RSI or MACD, to confirm the reversal signal.

Practice and patience: Develop your skills in identifying and trading the Shooting Star pattern through practice and patience, as no single pattern is perfect, and false signals can occur.

Continue to learn about Japanese candlesticks through books, such as Steve Nison’s  “Japanese Candlestick Charting Techniques” and “Beyond Candlesticks.”