Introduction
The shooting star chart pattern is one of the most popular technical indicators used by traders in the stock market. It is a bearish reversal pattern that signals a potential trend reversal from bullish to bearish. In this article, we will discuss everything you need to know about the shooting star chart pattern, including its definition, how to identify it, and how to trade it.
What is the Shooting Star Chart Pattern?
The shooting star chart pattern is a candlestick pattern that is formed when a stock opens higher than its previous day’s close, trades higher during the day, but then closes near its opening price. The shape of the candlestick resembles a shooting star, hence the name. This pattern is a bearish reversal pattern that indicates a potential trend reversal from bullish to bearish.
How to Identify the Shooting Star Chart Pattern
To identify the shooting star chart pattern, you need to look for the following characteristics:
- The candlestick has a small body.
- The upper wick is two to three times the length of the body.
- The lower wick is small or non-existent.
- The candlestick is found in an uptrend.
- The candlestick opens higher than its previous day’s close.
- The candlestick trades higher during the day, but then closes near its opening price.
What Does the Shooting Star Chart Pattern Mean?
The shooting star chart pattern is a bearish reversal pattern that signals a potential trend reversal from bullish to bearish. It indicates that the buyers were initially in control but lost their momentum towards the end of the day, and the sellers took over. This can be a sign of exhaustion in the uptrend, and a potential reversal in the near future.
How to Trade the Shooting Star Chart Pattern
To trade the shooting star chart pattern, you can follow these steps:
- Identify the shooting star chart pattern on the chart.
- Confirm the pattern with other technical indicators, such as the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD).
- Place a sell order below the low of the shooting star candlestick.
- Set a stop loss above the high of the shooting star candlestick.
- Take profit at the nearest support level.
Example of the Shooting Star Chart Pattern
Let’s take a look at an example of the shooting star chart pattern: 
In this example, we can see that the shooting star chart pattern is formed on the second day of the uptrend. The candlestick opens higher than its previous day’s close, trades higher during the day, but then closes near its opening price. The upper wick is two to three times the length of the body, and the lower wick is small or non-existent. This indicates a potential trend reversal from bullish to bearish.
Conclusion
The shooting star chart pattern is a popular technical indicator used by traders in the stock market. It is a bearish reversal pattern that signals a potential trend reversal from bullish to bearish. By identifying and trading this pattern, you can potentially profit from the reversal in the stock’s price. However, it is important to confirm the pattern with other technical indicators and use proper risk management techniques.
