What is a 'Shooting Star'

A shooting star is a type of candlestick formation that results when a security's price, at some point during the day, advances well above the opening price but closes lower than the opening price.

For a candlestick to be considered a shooting star, the formation must be on an upward or bullish trend, and the distance between the highest price for the day and the opening price must be more than twice as large as the shooting star's body. The distance between the lowest price for the day and the closing price must be very small or nonexistent.

Shooting Star

BREAKING DOWN 'Shooting Star'

Shooting stars indicate potential price tops and reversals. The shooting star candle is most effective when it forms after a series of at least three or more consecutive rising candles with higher highs. As the price rises, buyers get impatient waiting for a pull back, and leap frog over one another to purchase shares. Eventually, the buying frenzy hits a peak as the last of the immediate buyers jump into the stock (or any financial instrument) in a greed-driven panic to mark the highest high of the preceding series of candles.

Psychology of Shooting Stars

The earlier buyers eventually begin to take profits, and short-sellers enter into the stock, causing an immediate price drop after hitting a new high. The candle closes with a wick or shadow that is at least twice the size of the body. The wick or shadow represents the buyers who are immediately under water as liquidity starts to dry up. This is the potential shooting star candle. The very next candle will confirm whether it is a shooting star or a continuation candle.

Shooting Star Confirmation

The candle that forms after the shooting star is what confirms the shooting star candle. The next candle must fail to make a higher high and then proceed to close under the close of the prior candle. This represents the trapped buyers who quickly realize they may have overpaid for the position as the price stops rising. When the second candle closes lower than the prior candle low, it indicates that every buyer on the shooting star candle is now underwater. The tension builds until the proverbial trap door opens. Greed turns into fear as liquidity vaporizes, which in turn causes more panic selling. This can form a new series of falling candles with lower lows, representing a price pullback that could turn into a trend reversal.

RELATED TERMS
  1. Evening Star

    A bearish candlestick pattern consisting of three candles that ...
  2. Morning Star

    A bullish candlestick pattern that consists of three candles ...
  3. Star

    1. A type of candlestick formation that is identified when a ...
  4. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is ...
  5. Hammer

    A price pattern in candlestick charting that occurs when a security ...
  6. Hanging Man

    A bearish candlestick pattern that forms at the end of an uptrend. ...
Related Articles
  1. Trading

    Using Bullish Candlestick Patterns To Buy Stocks

    These five popular candlestick chart patterns signal a bullish reversal in downtrend.
  2. Trading

    Star Formations Spotlight Luminary Trades

    Morning, evening and doji stars will have you basking in better trading profits.
  3. Investing

    Tales From The Trenches: Location Is Everything

    When a candle pattern re-occurs near a moving average, it may indicate future support or resistance.
  4. Trading

    The Seven-Day Extension Fade

    It's possible to pick a top or bottom with no indicator support. We'll show you how this strategy works.
  5. Trading

    Heikin-Ashi: A Better Candlestick

    The Heikin-Ashi technique modifies the open-high-low-close series that most candlestick charts use, thus making trends easier to spot.
  6. Trading

    Tweezers Provide Precision For Trend Traders

    How to use candlestick tweezer patterns for analyzing and trading financial markets.
  7. Trading

    Candlesticks Light The Way To Logical Trading

    Crowd psychology is the reason this technique works. Find out how to make it work for you.
  8. Investing

    Is Morningstar’s Star System An Effective Ranking Tool? (MORN)

    Learn why Morningstar's star rating system is not always a great predictor of future performance, and why investors should not pick funds on star ratings alone.
  9. Trading

    Understanding the "Hanging Man": The Optimistic Candlestick Pattern

    A hanging man is a candlestick pattern that hints at the reversal of an uptrend. The candlestick is recognizable by a small box atop a long, narrow "shadow."
  10. Insights

    Original Star Wars Trilogy Returning to Theatres in August

    The oldest three Star Wars movies return to the big screen in August in a special program called "Return of the Trilogy".
RELATED FAQS
  1. How effective is creating trade entries after spotting a Shooting Star pattern?

    Explore the effectiveness of trade entries based on identifying a shooting star candlestick and factors that increase the ... Read Answer >>
  2. How do I build a profitable strategy when spotting a Shooting Star pattern?

    Understand the meaning accorded to a shooting star candlestick pattern, and learn a profitable trading strategy than can ... Read Answer >>
  3. How do I implement a forex strategy when spotting a Shooting Star Pattern?

    Learn how forex traders often implement a low-risk trade with excellent profit potential when they identify the shooting ... Read Answer >>
  4. How are Shooting Star patterns interpret by analysts and traders?

    Learn what the shooting star candlestick formation is and the reasons traders and market analysts commonly interpret it as ... Read Answer >>
  5. What is the difference between Hanging Man & a Shooting Star Pattern?

    Discover the difference between a hanging man pattern and a shooting star pattern, two bear indicators that appear at the ... Read Answer >>
  6. How do I build a profitable strategy when spotting a Morning Star pattern?

    Create a profitable trading strategy to use when spotting a morning star candlestick pattern that indicates a bullish market ... Read Answer >>
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center