Trouble In Paradise
Before you can understand the significance of the shooting star, you’re going to have to establish a firm understanding of the way traditional candlestick charts work in the first place. Basic candlestick charts are made up of bar structures that indicate the opening and closing prices of the day’s trading for a certain stock. Thin lines, or shadows, can extend from the tops and the bottoms of the candles, communicating the range of prices that were reached for the stock throughout the day.
You’re most likely to see a shooting star on your stock charts when the price of the security that you’re monitoring increases to a level that is well above the opening price at some point during the trading day, but ultimately closes at a price level that is much lower than the opening price. It’s also important to note that the only way to confirm this candlestick pattern as a shooting star, there must be a visible upward or bullish trend. It’s also worth pointing out that the distance between the top price and the opening price is required to be more than double the length of the shooting star’s body.
Once you’re more comfortable reading and interpreting the basic data of the candlestick charts, you’ll be ready to go on a hunt for the shooting star. This is a candlestick signal that usually indicates to traders that the trend they have been enjoying might be about to end, possibly moving sideways or even becoming a downtrend.