How Does A Shooting Star Candlestick Look Like?
The shooting star is a single candlestick candlestick which looks just like an inverted paper umbrella. It has a small real body and a long upper shadow/wick. The length of the upper shadow must be at least twice the length of the real body for the candle to be a shooting star. This is called the ‘shadow to real body ratio’.
The color of the body does not matter, but the pattern is slightly more reliable if the real body is red. The shooting star is a bearish pattern i.e. it indicates a downward reversal in the price from the prior upward/bullish trend.
Psychology Behind The Shooting Star Formation
During an up trend, the market keeps making higher highs and higher lows. On the day the shooting star candlestick pattern forms, the market as expected moves higher, making a new high. However at the high point of the day, there is a selling pressure pushing the price lower to the extent that the stock price closes near the low point of the day.
The selling indicates that the bears have made an entry, and were actually quite successful in pushing the prices down. This is evident by the long upper shadow. The expectation is that the bears will continue selling over the next few trading sessions, hence the traders should look for shorting opportunities.
The price action on the shooting star is quite powerful, thus making it a very popular candlestick pattern to trade.