Shooting Star patterns are interpreted as a bearish reversal pattern. Shooting stars appear in up trends but are a bearish candle. These patterns look like inverted hammer candlesticks but are near resistance levels. They are typically red or black on stock charts. Look for the price below the candle to confirm the bearish direction.
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A shooting star candlestick is typically found at the peak of an uptrend or near resistance levels. Shooting star candlesticks consist of a smaller real body with a longer upper wick and no lower shadow. They are typically red or black on stock charts.
They are single-day patterns. It opens higher and then trades much higher; however, it ends up closing near the open price. It is the bearish answer to the inverted hammer.
They have a small real body with little to no lower wick and a long upper wick. It should be at least two times the size of the real body.
This example shows two bullish candlesticks followed by the shooting star pattern. The shooting star has a large upper wick. Traders take a short position once the bearish candlestick falls below the star. This also makes up an evening star pattern. You’ll also notice that it looks like a head and shoulders pattern.
Shooting stars are the most effective when at the top of an uptrend. They signal that the bulls have lost control and the bears have taken over. The long upper wick is the area to pay attention to. It visualizes the bears pushing price action down.
Basics
Shooting star patterns indicate that the price has peaked and a reversal is coming. This pattern is the most effective when it forms after a series of rising bullish candlesticks.
Each bullish candlestick should create a higher high. Their upper wick is formed as buyers drive prices up at some point during the day. Selling pressure pushes the price back down so that it closes near the opening.
Buyers start getting impatient as price rises during those green days, wanting a pullback to get a better entry. The stock is bullish, so the price has risen for a while.
Buyers cause a buying frenzy, causing the upper wick to form. Shorts see the weakness and capitalize on said opportunity. They are pushing the price back down.
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Shooting Star Pattern Trading Strategy
- Go short at the break of the
- Use a close above the high as a stop
- Go long when the price breaks above the high
- Then use a candle’s close below the low as a stop
- Traders go long when the price fails to go bearish
Shooting Star Pattern Example
This is an example of a shooting star on the daily chart of $NVDA. You’ll notice that this short-term reversal pattern turned into a bull flag. Price consolidated and traded sideways for a bit before it turned into a rising wedge pattern. Inside the flag, you’ll see several spinning tops and doji candlesticks.
Pullback Example
The picture above is a daily chart of $MARA. The shooting star formed at the top of a rising wedge pattern. You’ll notice that price reversed and formed three black crows, which is three bearish candlesticks. Shooting stars don’t always mean a drastic drop in price. Many times they signal a pullback or reversal setting up a continuation of a bullish trend.
In this example you’ll see that the first pullback created a rising three methods pattern, which looks like a bull flag. The pattern turned into a bull pennant which ended up breaking out and continuing the bullish trend into a large megaphone pattern.
Inverted Hammer Example
This is an example of an inverted hammer candlestick on a daily chart of $CVX. This is a bullish reversal candle found near support levels. It’s the opposite of a shooting star. You’ll notice that there is also a double bottom pattern found within a triple bottom pattern. There are also several cups and handles on the chart as well.
Shooting Star Pattern Confirmation
Confirmation of shooting star patterns is very important. The candle that forms after the shooting star is what confirms the pattern. The next candle cannot make a higher high. Otherwise, the reversal is null and void. The close of the new candle must also close under this pattern. The second candle closing lower tells buyers to either hold and wait it out or cut their losses.
Greed usually turns to fear…that is where the panic selling starts. Traders can also see a large bearish candlestick form on the chart, letting traders know the bears are in control for now. This is why trading with an experienced group of traders can be advantageous. Check out our trading rooms to see what the team watches daily.
Final Thoughts
Shooting star patterns are one of the most common reversal patterns. At times, they may look like a doji or spinning top. What matters is what price action is telling you as a trader. It’s signaling that the bulls have lost steam. Suppose you are in a long position when you see this candlestick; then consider exiting your position. If you stay in the trade, pay attention if price action falls below the low of the spinning top candle. That’s your key to get out of the trade.
Frequently Asked Questions
The shooting star pattern is bearish. An inverted hammer is a bullish pattern. It looks like a shooting star but it's found at the base of downtrends. Shooting stars are found at the top of uptrends.
The pattern of a shooting star is an upside-down hammer formation at the top of an uptrend. It signals a bearish reversal.
A shooting star pattern is found at the top of an uptrend. It's a single candlestick with a bigger real body and a large upper wick. This signals that the bears are in control and looking to push the price down.
The shooting star pattern is a reliable reversal pattern. It's important to get confirmation on the third candlestick being bearish. This creates an evening star pattern which is a reliable bearish reversal pattern.
The opposite of a shooting star pattern is the inverted hammer. An inverted hammer looks like a shooting star, but they are found at support levels.
