Shooting Star Candlestick Pattern Definition
If there was a large rise in price in the middle of the day, but before the day ended it decreased to what it was at the beginning of the day and even less, a significant downward return occurred. The candlestick of this change (move) will be a "Shooting Star" in a daily time frame. A Shooting Star formation on the daily time frame is a very strong indication for a high probability of decreasing price in the next few days.
Example: The picture shows EUR/USD currency pair in a 30-minute time frame. On May 08, 2014 the price significantly increased from 1.3910 to 1.3995, but after that, it rapidly decreased even more and at the end of the day, it was closed at 1.3839.
Also in this picture - for better understanding - the Shooting Star Candlestick in the daily time frame - in the result of this intraday price change - is drawn.
Conditions of a Perfect Shooting Star:
- Body height must be short.
- The total height of the candle must be tall and more than the Daily ATR-264. The taller the candle is, the stronger the Shooting Star.
- The upper shadow’s length should be very tall. It is better to be over 75 percent of the Daily ATR-264.
- The lower shadow does not exist, or if it does, it is very small. It shouldn't be more than 25 percent of the Daily ATR-264.
- The Shooting Star that has a bearish body is stronger than the one which has a bullish body.
Strong Shooting Star: The picture shows a strong Shooting Star candlestick.
As can be seen, the candle’s height is tall, and it has a very short body height. Also, the upper shadow is very long and the lower shadow is very short.
As regards the Close price of the market is below its Open price, therefore the body of this Shooting Star is bearish, and it is very strong.
Shooting Star: The first sign of the beginning bearish wave.
Shooting Star shows that sellers are the winners in the war between buyers and sellers. At the beginning of the day, buyers were able to make significant increases in prices by investing heavily. But when the price peaked that day, huge sellers entered the field with more investment than buyers. Once again, they were able to reduce the price close to or below the beginning of the day. In short, in the war between buyers and sellers, the sellers have been the winners of the day, and the market is largely in control of them. Therefore, the probability of a further decline in prices in the next few days is high.
Example: picture shows, USD/JPY currency pair in a 30 minutes time frame.
In the beginning, by increasing investments of buyers, the price reaches to 103. But in this range with the arrival of large sellers to the market and buy orders overcome by sell orders, the price decreased again. Sellers not even could push buyers to the price where it was at 102.3 at the beginning of the day, but with higher investment in sell orders, they could push the price even less than that it was closed at 102.1 in the ending of the day.
As it can be seen, after forming Shooting Star, the bearish wave started and the price has decreased more.
Weak Shooting Star:
For having steady successful trading and investment decision, simple detection of market patterns is not enough. But with a deeper look, we should calculate the success probability of each pattern. One of the determining power parameters of Shooting Star pattern is its body whether it is bearish or bullish. A Shooting Star with a bearish body is stronger than a Shooting Star with a bullish body.
The Open price of the day is very important. This price - which is the Close price of the previous day - is, in fact, the price which buyers and sellers come to a balance, in the war in the previous day. So on the day that the Shooting Star is forming, if the sellers can decrease price below the Close price of yesterday, and they can keep the price below it by the end of the day, they will be the strong winners of the war. But if they couldn't decrease the price below the Close price of yesterday, they are not conclusive winners of today’s war, and this war will continue for the next days.
Therefore, if the body of Shooting Star is bearish, the beginning of bearish wave is highly probable. But if the body of Shooting Star is bullish, the probability of the beginning bearish wave is less. In this case, it is said a "Weak Shooting Star" is formed.
- The picture shows a standard Shooting Star candlestick pattern with the bullish body.
As it can be seen, candle’s height is tall, but it has very short body height. Also, the upper shadow is very long, and the lower shadow is very short.
As regards the Close price of the market is above its Open price, thus the body of this Shooting Star is bullish. Therefore its power is weak and the probability of the beginning bearish wave is low.
Example: The picture shows the price of GBP/USD on 2012.02.29. As the picture says, sellers couldn't push the price below the Open price of that day. Therefore, the final result of the war was not clear and buyers could again increase the price in the next day. (Consider the blue thick arrow)
But with the increment in price that increases the (Reward/Risk) ratio, attraction of sell order has increased, and new traders and investors decided to sell. As a result, in the second day of the war, the price finally decreased below the Open price of the first day and with a serious loss in the market balance, prices began bearish wave rapidly.
Shooting Star, without a doubt, is among the most important and successful bearish patterns and used by all professionals in financial markets as a sell signal.
We also recommend following Shooting Star in the "Daily Trading Opportunity (DTO)" section to watch the Success of this pattern. To learn more and see how to combine this model with other technical tools please read "Daily Trading Opportunity: Forming Shooting Star pattern in price".