Shooting Star Pattern

SHOOTING STAR (Nagare Boshi)

Description

The Japanese named this pattern because it looks like a shooting star falling from the sky with the tail trailing it. As with the shooting star, the trend should now be falling to the ground. The Shooting Star is comprised of one candle. It is formed completely opposite the Hammer signal at the bottom. It is easily identified by the presence of a small body with an upper shadow at least two times greater than the body. The Shooting Star is found at the top of an uptrend.

The predominant identifying aspect to the Shooting Star signal is the “tail” sticking into the air. The longer the tail, the stronger the evidence that after the Bulls pushed prices up, the Bears knocked it back down. The body of a Shoot­ing Star can be either black or white. The main feature of the signal is that the tail is at least two times greater than the body. After a strong up-trend has been in effect, the atmosphere is Bullish. The price opens and trades higher. The Bulls are in control. But before the end of the day, the Bears step in and take the price back down to the lower end of the trading range, creating a small body for the day. The smaller the body, the more convincing the signal becomes. The fact that the Bears push the price back down to the lower end of the trading range, although forming a white body, still reveals the presence of the sellers. If the sellers pushed the price down through the opening price and closes lower, creating a black body, that is more evidence the sellers have taken control.

The facets built into candlestick signals provide an immense amount of information that would not be found in conventional bar charts. Even though the Bulls may have been able to keep the price positive by the end of the day, the evidence of the selling was apparent. A lower open or a black candle the next day reinforces the fact that selling is going on.

Criteria

1.    The upper shadow should be at least two times the length of the body

2.   The real body is at the lower end of the trading range. The color of the body is not important although a black body has implications that are slightly more Bearish.

3.   There should be no lower shadow or a very small lower shadow.

4.   The following day needs to confirm the Shooting Star signal with a black candle or better yet, a gap down with a lower close.

Signal Enhancements

1.    The longer the upper shadow, the higher the potential of a reversal occur­ring.

2.   A gap up from the previous day’s close sets up for a stronger reversal move, provided the day after the Shooting Star signal opens lower.

3.   Large volume on the Shooting Star Day increases the chances that a blow- off day has occurred, although it is not a necessity.

The Shooting Star signal indicates failure, the failure of the Bulls to continue the trend. When witnessing an upper shadow that appears to be stretching up to nowhere, start anticipating the change of investor sentiment. The Hammer signal illustrates the failure of the Bears to continue the downtrend. The shoot­ing star signal reveals the same failure of the Bulls at the top. It is not uncom­mon to see other candlestick sell signals in conjunction with the shooting star signal. Note in Fig. 2-61, the Immtech International chart how a Hanging Man formed prior to the Shooting Star. The stochastics are in the overbought area. The Hanging Man signal indicated the starting weakness of the trend.

The Shooting Star signal illustrates the Bears started taking action. The Bearish Engulfing signal following the Shooting Star confirms that the sellers have entered the trade. Visually the Shooting Star illustrates that the new heights in price were pushed back down. The Shooting Star signal can also indicate the failure of the trend at important resistance levels. A combination of signals creates that much greater evidence that a reversal is occurring.

As illustrated a in Fig. 2-62, the PMC Sierra Inc. chart, the uptrend became indecisive at a major moving average. The scenario of this trend may have been completely different had the Bulls been able to maintain the price up through an important resistance level.