Shooting Star
Candlefocus EditorFrom a technical perspective, the pattern is easily identified by its single candle that body closely resembles that of a star. This single candle contains a deep lower shadow which signals the strong push downwards by the sellers. The upper wick, or shadow, of the candle is relatively short in comparison – signalling the sellers’ swift takeover.
Traders will typically wait to observe what happens in the next candle period. If the price declines during this period they may sell/short the market in order to benefit from the bearish move. However, if the price rises despite the reversal signal, it is then possible that the shooting star seen was a false signal or that it was simply marking the potential resistance level of the price.
Regardless, shooting stars are an important tool for traders. They are invaluable in helping identify potential price movements, and also indicate the strength of whether buyers or sellers are really in control. Therefore, traders should not discount the potential of shooting stars in their technical analysis.