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Shooting Star Candlestick Pattern Guide

18 Oct 2023

Introduction

Traders and investors use various tools and indicators to decide on their financial market positions. One such tool is the candlestick pattern. It provides insights into market sentiment and likely price reversals. Among the many candlestick patterns, the shooting star candlestick pattern is a significant signal that traders often rely on. Let's explore the shooting star candlestick pattern and what it indicates.

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What is a shooting star candlestick pattern?

It is a single candlestick pattern found on price charts. Its unique shape resembles a star with a long upper shadow and a small natural body near the candle's low. To identify a shooting star pattern, you need to look for the following key features:

  • Small real body

The actual body is the range between the open and close values of the trading session. The natural body is typically tiny in a shooting star pattern. It indicates little price movement between the open and close.

  • Long upper shadow

The long upper shadow extends above the actual body. The shadow represents the highest price reached during the session.

  • Short or absent lower shadow

Unlike the long upper shadow, the lower one is either very short or completely absent. It signifies there was little to no buying pressure during the session.

What does the shooting star candlestick pattern indicate?

The pattern is a bearish reversal pattern, which often signals a potential change in the direction of the price trend. When you encounter a shooting star on a price chart, it suggests the following:

  • Potential reversal

It indicates buyers attempted to push the price higher but were ultimately overpowered by sellers. The failure to sustain upward momentum can foreshadow a trend reversal from bullish to bearish.

  • Market exhaustion

The long upper shadow suggests a brief surge in unsustainable buying interest. It can be seen as a sign of market exhaustion, mainly if it occurs after a prolonged uptrend.

  • Resistance level

The high point of the shooting star's upper shadow can indicate a significant resistance level. If the price attempts to rise above this level in subsequent trading sessions and fails, it strengthens the bearish signal.

Conclusion

The shooting star candlestick pattern is valuable for traders identifying potential trend reversals. Understanding and incorporating its characteristics into a well-rounded trading strategy can improve your trading success. However, like all technical analysis tools, it is not foolproof. Use it with other analysis and risk management techniques for a comprehensive trading approach.

 

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