Shooting stars indicate a potential price top and reversal. The shooting star candle is most effective when it forms after a series of three or more consecutive rising candles with higher highs. It may also occur during a period of overall rising prices, even if a few recent candles were bearish.
Following the advance, a shooting star opens and then rises strongly during the week. This shows the same buying pressure seen over the last several periods. As the week progresses, though, the sellers step in and push the price back down to near the open, erasing the gains for the week. This shows that buyers lost control by the close of the week, and the sellers may be taking over eventually.
The long upper shadow represents the buyers who bought during the week but are now in a losing position because the price dropped back to the open.
The candle that forms after the shooting star is what confirms the shooting star candle. The next candle's high must stay below the high of the shooting star and then proceed to close below the close of the shooting star. Ideally, the candle after the shooting star gaps lower or opens near the prior close and then moves lower on heavy volume. A down week after a shooting star helps confirm the price reversal and indicates the price could continue to fall. Traders may look to sell or short sell.
