Trading candlestick patterns-Shooting Star

Trading candlestick patterns(Figure 20)

Figure 20 illustrates a Shooting Star reversal pattern. The Shooting Star pattern is a three day pattern consisting of a white (or clear) bodied candle on the first day, followed by a small bodied black or white candle on the third day that gaps up above the first day’s close. The final day of the Shooting Star will complete the pattern with a longer than average black (or filled) candle that gaps down below the body of the second candle, closing well into the body of the first candle of the formation. After a substantial uptrend, buyers carry prices higher as the first day of the formation reveals itself. At the beginning of the second day there are enough buyers left to cause a gap up in price, but demand for the stock decreased as sellers move in to take their profits and cause the formation of a candle with little price movement (small body). The third days dark bodied candle forms as the sellers overtake buyers causing an oversupply in the stock being traded and prices quickly decline throughout the day, eliminating much of the move of the previous two days. There are a few indications you can look for to reinforce the signal:

•High volume on all three days of the Shooting Star formation.
•Very long candles on the first and third day of the formation.
•The third day penetrates the first days candle by greater than 50%.
The pattern forms at a point of technical resistance such as an upper trend line, major moving average, or horizontal price resistance.

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