Candlestick Patterns 101: Shooting Star

Thursday’s gap and over indecision looked poised to form many abandoned babies. However, the ugly jobs report didn’t provide the degree of movement to yield many of those. As a result, some stocks and industries that did weaken formed another bearish pattern called a Shooting Star.

Shooting Star Basics

When analyzing candles, the size of the real body along with the direction and length of shadow says a lot about the psychology of traders. When a candle has small real body, it’s representative of indecision. That indecision may lead to exhaustion and a reversal. Shooting stars are an indication of exhaustion with the long upper shadow and little to no upper shadow. While it’s bearish in and of itself, looking for a close the next day below the real body can provide extra confirmation. If you take a look at the Technology Select Sector SPDR Fund (NYSEARCA: XLK), you’ll see another example.

Overall Rating: 2 Star

Directional Bias: Bearish Reversal

Number of Candles: 1

Frequency Rating: 3 Star

Pattern Description:

The Shooting Star pattern forms at the end of an uptrend. The price opens at or very near the low of the session and rises throughout the session before falling back to close near the opening price, forming a small real body. The formation has little or no lower shadow and an upper shadow that is at least twice the length of the body.

Volume Description:

Above average volume during the formation of the Shooting Star and increasing volume as the price closes lower the next day increases performance.

Statistical Notes:

Taller Shooting Star patterns with long upper shadows that occur in a neutral or bearish primary trend typically perform better than shorter patterns. A confirmation of a lower close the next day increases performance.

Measuring Technique:

Subtract the trading range of the pattern from the low of the day.

Conclusion

Shooting stars are one of the more common patterns. However, you can increase the effectiveness by looking for longer upper shadows and more volume. While they are more common, seeing a confirmation day and looking at the overall trend can be add-ons that may make it even more reliable.