How to Interpret a Shooting Star?
The occurrence of a shooting star on technical charts is a signal that security prices have reached a top and a reversal is right around the corner. A shooting star candle is considered best when it is formed after a maximum high with three or more consecutive rising candles. This is possible throughout periods of rising prices with a few bearish candles.
After the advance, a shooting star opens and remains high during the session. This is a sign of buying pressure seen earlier. As the session progresses, sellers step in and push the price back to where it was, erasing the profits made in the session. The long upper shadow represents buyers who made purchases during the session but are now in a losing position as the price moves back to the open level.
Traders should know that the candle formed after the shooting star is a confirmation of the shooting star candle.
The height of the next candle should remain below the height of the shooting star and then it should move from below near the shooting star. An ideal formation occurs when the candle closes or opens near the previous close after the shooting star and then declines on heavy volume.
A bearish day follows the appearance of a shooting star that confirms a price reversal. This indicates that prices may continue to fall, where traders may look for selling. Even if prices rise after a shooting star, its price range may act as a resistance.
Difference Between Shooting Star and Inverted Hammer
The Inverted Hammer and the Shooting Star are similar to each other. Both have long overhead shadows. There are no other similarities between the two patterns other than the smaller actual size and almost no bottom shadow near the candle’s bottom.
The difference between the two is that the Shooting Star occurs after a price rise and the Inverted Hammer occurs after the price falls.
Shooting star limitations
Prices are often very low. So a candle is not very important during a hike. A period-long price downturn in a shooting star may not be significant at all, which is why confirmation is required.
It has also been observed that after a brief decline, prices continue to move in line with a long-term uptrend. One way to limit risk is to use stop losses when using candlesticks.
It should be noted that a candle pattern may be more significant when it occurs near a level that is considered important by other forms of technical analysis.
Benefit
The shooting star pattern is considered a good tool because of its simplicity. This pattern is easy to find. However, the presence of a candle in itself is flawed. If it appears near a resistance level, the shooting star serves as confirmation.
Extraction
A shooting star candlestick shows a bearish structure that rises during the price session but is pushed back below the opening price. Traders are mostly concerned about the next candle after it starts shooting. A drop in price during the next period may trigger a sell call while a price rise after the shooting star may mean that the formation is a false signal or the candle may form a resistance zone around the price range of the candle. Has been.
It should also be noted that charts are an indication and may not always follow actual price movements.
