Shooting Star candlestick
Shooting Star candle is a bearish reversal candlestick pattern that indicate possible trend change of the stock. This star candlestick is more reliable in the resistance level.
Formation of Shooting Candlestick :
Formation of shooting star candlestick is depends on the following features:
- Long Upper Shadow: To form this pattern candle should have a long upper shadow. Ratio of shadow should be at least twice the body of the candle. Actually higher the ratio of shadow to body of the candle, better the candle formation. Psychology behind the long shadow is that in an uptrend, stock made upward move in the morning. This means uptrend is still intact. But at the end of the day stock failed to hold the morning upward move and stock came back to the opening price of the morning. This indicates bull lost its strength and possible trend reversal signal.
- Open- close: Stock open close has a small body. However, the smaller the body of the shooting star, the better the expected outcome. If open close is same, this pattern is also known as Gravestone doji.
- Color of the candle: Candle color can be red or green. But red is better.
- Support or resistance line: This pattern works very well if they formed close to the resistance zone. If shooting star is arrived at the multiple resistance zone area, shooting star become potent reversal pattern.
Shooting star candle trade setup:
Shooting star candle is formed when stock is in uptrend most of the times. For successful shooting star pattern a strong uptrend is important. Shooting star in uptrend associated with a significant resistance level is an indicative of very strong reversal and reliable pattern.
Entry to the Bearish shooting star Trading Setups:
After a prolong uptrend, stock made bearish shooting star. Entry price is for this pattern is below the low of the shooting star candlestick. In the chart entry point is indicated by the blue line. After shooting star formed trader enter enter the trade next trading day, when stock break the low of the shooting star. Confirmation is important for this trade set up.
Exit to the Bearish Shooting Star Candlestick:
Exit is indicated in the chart by yellow line. When stock broke the high of the shooting star candlestick, the pattern is broken and trader need leave the position as early as possible. The reason for the exit is that as stock break the high of the shooting star it means uptrend is resumed and bear failed to control the downtrend.
(click to enlarge)
This is chart for AFL with shooting star candle formation. Shadow area in the chart shows the candlestick formation of shooting star. In the AFL chart shooting star composed with good resistance line, prolong uptrend and Shooting star candle.
This chart is a good shooting star formation because of its presence in resistance line. In the chart, after shooting star pattern is confirmed by another strong red candle, stock completely broke the uptrend and moved down from $66 to $59 less than 2 weeks. Stock lost more than 10 percent value during this period.
This is a one candlestick bearish reversal pattern for day trading . This strategy works better if used with other technical indicators.