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Forex Glossary

Shooting Star

A Shooting Star is a kind of candlestick pattern that forms at the pinnacle of either a bearish or bullish upward trend. This shot is taken from above and looks like a star soaring through the sky and for this reason its name. Here’s what it looks like: 

  • Small Body: The candle features a small body positioned at the lower part of the candle area.
  • Long Upper Wick: The long upper wick shows that during the trading session, the asset’s price rose significantly but then fell back down.
  • Little to No Lower Wick: The lower wick, the thin line just below the body, appears very thin or is not visible at all.

From this pattern, we can understand that while buyers attempted to raise the price higher, the sellers reversed the trend and lowered it by the end of the session.

How to Identify 

To find a Shooting Star, look for these signs:

  1. Context: It should appear after a strong upward trend.
  2. Shape: The candle should have a small body, a long upper wick (at least twice the length of the body), and a very short or no lower wick.
  3. Location: It usually appears at the top of the price movement.

Imagine a stock that has been climbing steadily. Then, suddenly, you see a candle with a long upper shadow. Buyers tried to push the price up but faced resistance, leaving it close to its starting point.

What Does a Shooting Star Indicate?

A Shooting Star is primarily an indication that the market can potentially begin to fall. After a strong uptrend, this pattern indicates buyers are weakening, and sellers may take control, pushing the price down towards the session low.

But there is more to shooting stars than just watching Shooting Star as they light up the sky. That’s why you should consider the trading activity level when the signal is generated. A Shooting Star which is accompanied by a high volume is better than one with a low volume. As such, there are other factors that one should look at to make further moves as highlighted below.

Using the Shooting Star in Trading

If you see a Shooting Star signal, it might be time to sell or take profits, as the price could drop. Just bear in mind that more analysis is needed in order to confirm this sort of pattern. Check the stock price trends and other metrics like moving averages for the next period.

Risk management is also central to any process that one is undertaking. Place the stop-loss just above the Shooting Star’s high if the price doesn’t drop as expected. Manage trades by considering patterns alongside other market elements, not just by blindly following them.

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