This is a Bearish Signal If Occurs after a significant uptrend. The body could be Red or Green, This Candlestick tells you to go short after confirmation in preceding candle. This is same as Inverted Hammer but this should form at the end of an uptrend. This comes under Bearish Reversal Candlestick Pattern. This doesn’t indicate that Sellers have taken full control but simply indicates that sellers are trying to pull the price down. It can form in any timeframe. The larger the time frame the more impactful shooting star candle can be considered.
The Body of the candle should be small (Open and Close should be almost equal) and wick (Upper Shadow) should be at least twice as long as the body, While lower Shadow should be nil or very small. It should be formed at the end of an uptrend (Higher Highs candle would be more helpful in decision making).
Shooting Star candle doesn’t alone give the confirmation of selling activity. Next Candle after Shooting Star should close below the low of Shooting Star candle. If the Shooting Star candle is red, then it gives more confirmation about the bearishness in coming days or in coming sessions. Next candle shouldn’t make higher high.
How To Trade
If you are doing an EOD analysis and you find shooting star in any daily or weekly chart then you should wait for confirmation next day. After getting confirmation as described above, one can trade on the scrip on positional basis after finding possible support/resistance levels.
In the above HINDALCO daily chart, Shooting Star was formed on 30 May 2017 at an uptrend (after higher high candles) and next candle itself closed much lower than the Shooting Star’s low. On Position trading basis, one can short these kinds of scripts with Stoploss higher than the Shooting Star’s High and can keep trailing the SL as per possible support levels.
If you find shooting star formation in any scrip which is in uptrend in intraday then it may give sign of reversal if preceding candle confirms the move. This can happen in any time frame. The use of pivot points for this purpose is more helpful. Suppose you found some scrip which has made good up move with higher high candles and testing it’s levels at Pivot Point R2 or R3 (this can happen at any pivot point levels, the main criteria is that script should be in uptrend making higher highs), then you can take your position after confirmation in next candle as mentioned above.
In the above 5min chart of BHARTIAIRTEL, you can see shooting star was formed after considerable uptrend and next candle also closed below close of shooting star. This gave us a very perfect sign to go short. We can go short by putting our stoploss at high of shooting stars candle or high of previous candle to shooting star (whichever is higher).
Lesson to Learn
In the above NIFTY daily chart, Shooting star was formed on 11th July 2017, however next day candle didn’t close below the low of shooting star candle. The lesson to learn from this chart is that, never take decisions in hurry, always wait for the confirmation next day, you cannot trade simply on just formation of shooting star on any timeframe.
How to find such scripts
You can use our Fast Intraday Screener to find which scripts which is near any support pivot points and you can keep observing it, if you get above setup you can go short on such scripts. You can also find scrips which has formed shooting star candle pattern on current day.