Shooting Star Candle: Reversal Pattern at the Peak
I. Definition and Characteristics of the Shooting Star Candle
What is a Shooting Star?
The Shooting Star is a single-candle bearish reversal pattern in Japanese candlestick analysis that forms after a series of upward bars or at a strong resistance zone. The key feature is a small body at the lower end of the candle's range and a long upper shadow, which is 2-3 times longer than the body, with almost no lower shadow. This structure reflects an attempt by bulls to push the price significantly higher, but bears drove it back down, signaling a shift in the balance of supply and demand.
Under what conditions does it work best?
The pattern is most reliable when formed at historical or psychologically significant resistance levels, as well as at round price levels (for example, 1.2000 for EUR/USD). In sideways market conditions, the Shooting Star often gives false signals; therefore, in such situations, stronger confirmation through volume and retests is required.
II. Structure and Conditions for Formation
Body and Shadow Proportions
The candle's body should occupy no more than 25-30% of the total range, with the upper shadow being at least twice the length of the body. If the shadow is too long (4-5 times the body), it indicates excessive volatility, making the signal less predictable.
Position in Trend and Multi-Timeframe Analysis
For reliability, the Shooting Star forms after at least two upward bars and directly before the resistance level marked by previous highs. Confirmation on higher timeframes (H4, Daily) significantly strengthens the validity of the signal, while a similar candle on lower timeframes (H1) helps to pinpoint the exact moment of entry.
Sometimes, "composite" patterns occur when several Shooting Stars on different timeframes create a synchronous signal, greatly enhancing the accuracy of entry. Such moments should be sought during major events on the economic calendar.
III. Methods of Signal Confirmation
Increase in Trading Volume
During a true reversal, the volume on the Shooting Star candle or immediately after it should exceed the average. This signals the entry of major market participants into short positions, confirming the strength of bearish momentum.
Retest of Resistance Level
After the formation of the Shooting Star, the price often returns to the peak of the shadow to retest the resistance level. A bounce down from this point provides a convenient entry point for a short position, with a stop loss placed just above the candle's shadow.
Technical Indicators
- RSI: exiting the overbought zone (>70) when the pattern forms strengthens the reversal signal;
- MACD: a crossover of the signal line from top to bottom confirms the start of bearish momentum;
- Bollinger Bands: a candle closing above the upper band followed by a drop to the middle line indicates a weakening of bullish volatility.
Additionally, ROC and CCI are used to assess the speed and strength of the reversal. These indicators help to filter out signals that arise in the context of weak fluctuations, which are insufficient to develop a full-fledged market.
IV. Filtering False Signals
Signs of a Fake Shooting Star
A false signal arises on low volume, without a retest of resistance, or during significant news releases. Typically, the price quickly returns to previous levels, demonstrating the absence of real bearish pressure.
Additional Filters
- Stochastic: confirmation of a reversal from the overbought zone;
- Multi-timeframe: absence of a signal on H4 and higher indicates weakness;
- Candlestick Combinations: double or triple Shooting Stars to enhance the pattern.
It is also important to consider the time of day: signals during the Asian session are less reliable compared to European and American trading hours. During these periods, liquidity is lower, and spreads are wider, leading to a greater number of false breakouts.
V. Related Patterns and Comparative Analysis
Shooting Star vs. Hanging Man
Though the patterns are identical in form (small body and long upper shadow), the Shooting Star forms after an uptrend and signals a bearish reversal, while the Hanging Man appears after a downtrend and indicates a bullish reversal.
Differences from Hammer and Pin Bar
The Hammer is the mirror counterpart to the Star, a reversal pattern at the market's bottom with a long lower shadow. The Pin Bar is a general category of candles with long shadows; the Star is the bearish variant of the pin bar and adheres to the general confirmation rules.
Traders sometimes combine the Shooting Star with the Pin Bar on shorter timeframes to find additional entry points during corrections within medium-term trends.
VI. Market Psychology and Risk Management
Psychology behind the Pattern
The long upper shadow reflects initial bullish activity that shifts to fear of missing out (FOMO) among bears, leading to price pressure. Understanding this psychological shift helps traders react promptly to changes in market sentiment.
Stop Loss and Position Sizing
The stop loss is placed just above the peak of the Star's shadow, adding half of the ATR to account for market noise. The position size is calculated to risk no more than 1-2% of capital, which allows for stability during a series of losing trades.
Emotional Management
Maintaining a trading journal, a strict entry-exit plan, and adherence to risk management helps avoid impulsive decisions and optimizes the strategy. Regular analysis of trades enhances the skill of interpreting candlestick signals.
VII. Practical Strategies and Examples
Example on EUR/USD Currency Pair
On the H4 chart, after a week of gains, a Shooting Star appeared with a volume +50% above average. The RSI exited from the zone >70, and the MACD crossed downward. After a retest of 1.1050, a short position was opened: stop loss at 1.1070, take profit at 1.0950 (R:R = 1:5), yielding +100 pips at a risk of 20 pips.
Example on Brent Oil
On the daily chart for Brent, the Star at the $85 level was confirmed by volume and retest, leading to a $3 drop over five trading days. This approach is effective for strategies in commodity markets near seasonal peaks.
Cross-Asset Strategy
The synchronous appearance of a Shooting Star on energy company stocks and oil prices indicates a fundamental reversal. Entering short on both instruments allowed for risk diversification and increased overall returns.
Algorithmic Implementation
A scanner searches for candles with a body ≤25% of the range, a shadow ≥200% of the body, and volume ≥80th percentile. Upon meeting conditions, a notification is sent, and at retest—a broker automatic order is placed. This reduces slippage and delays.
Developing such robots requires considering various parameters: hidden volumes (dark pools), overlaps with news events, and correlation with other assets to avoid false triggers.
VIII. Conclusions and Recommendations
Key Recommendations
1. Use the Shooting Star only at the peaks of trends and in resistance areas.
2. Confirm the signal with increasing volume and a retest of the level.
3. Apply multi-timeframe analysis (H1, H4, Daily).
4. Reinforce the reversal using RSI, MACD, and Bollinger Bands.
5. Strictly adhere to risk management: adaptive stop loss and reasonable position sizes.
Additional Tips
- Study historical examples of the pattern across various assets and timeframes.
- Combine the Shooting Star with Fibonacci levels, volume profiles, and other candlestick patterns.
- Pay attention to macroeconomic factors and news that may strengthen or weaken the signal's strength.
- Regularly improve your multi-timeframe analysis and understanding of market psychology to enhance decision-making quality.
