Shooting Star Candlestick

Shooting Star Candlestick

Sorry to be a spoil-sport. While most of the investors are enjoying the bull-run, this Contrarian is searching for spoilers. In this article, I would like to discuss the Shooting Star candlestick – first a bit of theory and then a couple of practical examples.

In technical analysis, a shooting star is interpreted as a type of reversal pattern presaging a falling price. The Shooting Star looks exactly the same as the Inverted Hammer, but instead of being found in a downtrend it is found in an uptrend and thus has different implications.

Like the Inverted hammer it is made up of a candle with a small lower body, little or no lower wick, and a long upper wick that is at least two times the size of the lower body. The long upper wick of the candlestick pattern indicates that the buyers drove prices up at some point during the period in which the candle was formed but encountered selling pressure which drove prices back down for the period to close near to where they opened.

As this occurred in an uptrend the selling pressure is seen as a potential reversal sign. After encountering this pattern, the trader often checks for a lower open on the next period before considering the sell-signal valid. 

As with the Inverted hammer most traders will see a longer wick as a sign of a greater potential reversal and like to see an increase in volume on the day the Shooting Star forms. 

For a candlestick to be in star position, it must gap away from the previous candlestick. In Candlestick Charting Explained, Greg Morris indicates that a shooting star should gap up from the preceding candlestick. However, in Beyond Candlesticks, Steve Nison provides a shooting star example that forms below the previous close. There should be room to maneuver, especially when dealing with stocks and indices, which often open near the previous close. A gap up would definitely enhance the robustness of a shooting star, but the essence of the reversal should not be lost without the gap.

Now a couple of "Real" examples from Dhaka Stock Exchange. I am not saying that they will straight away go on a downtrend. Rather they could be used as exit or profit taking points. 

*Support is a few points below - but to loose in this market feels sad!

Agni Systems Limited followed by Beximco Pharma Limited: