Introduction to Shooting Star Shooting star is a pattern in the price movement of a stock. It is a bearish phenomenon where the candle wick is longer at the top and has a small real body on the chart. The representation of such a candle refers to the stock showing the candle will face a price reversal soon before the trading day closes. This induces traders to take a short position to sell before the price drops further.
Understanding Shooting Star Graphically, shooting stars have long upper shadows that look like a wick and a small rectangle to the bottom on the wick. A shooting star pattern occurs when a stock trades on the market above its opening price and suddenly begins to fall under its resistance, reversing its price by the end of the day. This phenomenon is common in a bullish trend in cases where the stock shows an upward price movement. The shooting star is a part of the hammer group of graphical representation of price movements and often indicates a reversal. This prompts investors to sell their holdings before the price can fall further than its opening price (or the price at which the investor purchased that stock for), which then will shift into bearish phase. The psychology that works behind reaction to a shooting star is layered complexly and can yield profits in taking a short position and selling. The more people that join the bandwagon, the greater the upper shadow on the candle is, which indicates a stronger price reversal and market exhaustion. The bears are at war with the bulls at the time of a shooting star pattern, which is represented by the previous candle almost always having a larger real body and very tiny shadows.
Highlights of Shooting Star Shooting star shows the resistance position of the stock (otherwise called the market top for that stock) which means that the price cannot climb higher than before the pattern occurred. The bottom shadow, or the lower tail, is very nonexistent in a shooting star. It is usually hard to predict whether the price reversal indication will run for a long time or is a short term indicator. A distinction can be made by observing the period of bullish trend of that stock before the shooting star formed.
