Shooting Star

The Shooting Star is another version of the Evening Star; it's a bearish reversal pattern, composed of three candlesticks.

The 2nd candlestick is the star itself and, in the case of a Shooting Star, it's represented as an Inverted Hammer.

Its main characteristics are as follows:

The Shooting Star must occur after an uptrend.

• The 1st candlestick must have a green body.

• The 2nd candlestick should preferably form a bullish gap, the colour of the body does not matter that much but it must be situated on the lower part of the candlestick and the upper shadow must be long (at least twice as long as the body).

• The 3rd candlestick should ideally (but not necessarily) form a bearish gap and have a long red body.

Such a pattern occurs when, after an uptrend, the day after gains were made, prices open on the rise and form a gap with the close of the day before, they rise sharply but fall back again and finally close at almost the same level as they opened. The day after, prices open on a bearish gap and fall before finally erasing most of the gains of the 1st Japanese candlestick. This confirms the pattern and the main force is now bearish. It shows the bulls' incapacity to keep prices high.

It is worth mentioning that the 2nd candlestick should ideally form a gap with the 1st and that a gap between the 2nd and the 3rd candlestick is also preferable but not necessary. As for the body of the 2nd candlestick, the colour is not of great importance although red is best.

The wider the gaps, the more significant the pattern is. And the more gains the 3rd candlestick erases, the more significant the pattern is. The longer the upper shadow of the 2nd candlestick, the more significant the Shooting Star. The Shooting Star is less restrictive than the Evening Star, which is why its elements only determine its potential strength. The reversal power could be weak if one can only see a long upper shadow on the 2nd candlestick but it will be stronger if gaps can be observed. Strong volumes on the 3rd candlestick can also confirm the pattern.

Regardless of the quality of the gaps and the star, it is wiser to wait for the end of the pattern and the formation of the red body before initiating a position. Depending on the quality of the Shooting Star, uncovered sales can be launched at D+2 (D being the day when the star occurred and D+1 that of the red candlestick). The invalidation threshold can be placed either above the highest point of the pattern, or above the gap 2, if this one occurred, and depending on the stakeholders' investment intentions.

Moreover, it is interesting to observe both reversal patterns and support and resistance lines. A Shooting Star can form during a resistance and even go through it momentarily, without invalidating it and giving rise to a bearish reversal.