One of the significant candlestick patterns that you must learn about is a Shooting Star Candlestick Pattern.
Many people tend to say that the shooting star candlestick chart is somewhat similar to the evening star.
Ideally, candlesticks are known to provide a lot of market information, including how would the market price behave?
These candlesticks are also known as indicators as they tell the traders when to enter or exit the market.
Japanese candlesticks, being superior charting technique are used by several traders. Nothing is surprising to know that the shooting star formation is also one of them.
About Shooting Star Candlestick Pattern
Generally, a shooting star candlestick pattern reveals a trend reversal in the market, and it features only one candle.
It is formed only when the price increases and is quickly rejected by lower, which eventually leads to a long wick to the upside.
You need to know that the long wick should be at least half of the entire length of the shooting star candlestick formation.
In simple terms, when you see a this pattern, it indicates a bearish candlestick featuring a long upper shadow with little or no lower shadow. It is mostly seen after the uptrend.
Experts say that it is a type of candlestick that is formed when the stock opens and significantly advances, but then they also close the day near the open again.
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Formation of Shooting Star Candlestick pattern
The formation must take place during a price advance for a candlestick to be considered a shooting star.
Additionally, the distance between the maximum price of the day and the opening price must be at least twice the size of the shooting star’s body.
Below the real body, there should be little or no shadow at all. Additionally, the shooting star candlestick pattern must appear at the top of an uptrend.
It is the main reason why the shooting star formation is often thought to be a possible sign of the bearish reversal.
All it means is that the uptrend might not continue for a long time, and the prices are most likely to fall.
Traders have to be careful about one thing, that they shouldn’t confuse the shooting star pattern with inverted hammer candlestick as both of them have a longer upper wick and tiny body.
The only difference between them is the inverted hammer indicates a bullish market.
In contrast, the shooting star chart indicates bearish markets, and it is ideally observed at the bottom of the downtrend.
Furthermore, the closing price should be near the downtrend of the candle. It mainly creates an overall bearish structure because the prices are not able to sustain the higher trade.
Benefits of using Shooting Star Candlestick Pattern
The shooting star candlestick pattern is a fantastic tool for technical traders, mainly because of its simplicity.
It is easy to spot potential shooting star pattern if you understand the description given above.
Sometimes, the candlestick pattern is flawed. This pattern is said to confirm the new bearish bias if the pattern is seen near the resistance level or trend line.
It is mainly because a single candle is mainly essential in the overall trend or market movement.
When using this pattern, it is important to incorporate risk management. It gives the trader the safety net if the market tends to move in the negative direction.
The best part about using the shooting star candlestick formation is that it is easy to identify, reasonably reliable provided all the criteria are met, and lastly suitable to all traders but not restricted to novice traders.
Limitations of Shooting Star Candlestick Pattern
A single candle isn’t enough at all in a significant uptrend. Prices are always fluctuating, so the traders tend to take control of one period, including in the shooting star pattern, which might not be enough for all. It is the only reason why confirmation is needed.
After the shooting occurs, the selling must take place. But, you need to know that even after the confirmation there is no such guarantee that price will continue to fall.
The price is most likely to keep advancing in alignment with the longer-term uptrend even after a brief decline.
When using the shooting star candlestick, you need to use stop losses, so when they don’t work out, your risk is controlled.
Furthermore, you can also consider using candlestick in conjunction with other types of analysis.
Usually, the shooting star candlestick doesn’t necessarily define short term trade, and for further technical justification, confirmation is a must.
What does Shooting Star Candlestick Chart convey a Trader?
Shooting star candlesticks mainly indicates a potential price top and reversal. The pattern tends to be more effective when it forms after a series of at least three or more continuous rising candles with higher levels.
It might also take place during the period of rising prices in the overall scenario, even if some of the candles tend to be bearish.
The rises are substantial during the day. When shooting star opens, all it shows is the buying pressure seen over the past few periods.
The sellers step in to push the price down to the opening price as the day progresses. By doing this, it can be said that buyers tend to lose control by the end of the day.
The buyers tend to be represented by the long upper shadow who had bought the securities in the opening but now are in an extended position as the price dropped back to the opening price.
Conclusion: Shooting Star Candlestick Pattern
Ideally, a shooting star candlestick occurs when a security’s market price is pushed up majorly but then later on rejected and closed near the opening price of the stock.
It is most likely possible that it indicates a bearish reversal and by it means that the price in the uptrend won’t continue.
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