Japanese Candlestick Analysis
figure 14.17 An Overextended Shooting Star on the Hourly EURUSD Chart.
Source: MetaTrader 4Desciption:■ (^) The shooting star is a single candlestick reversal pattern. See Figure 14.16.
■ (^) It has a small real body that should be no larger than one‐quarter to one‐third
of the entire candlestick range.
■ (^) Longer upper shadows indicate greater bearishness.
■ (^) It is best found in a protracted uptrend that is beginning to display weakness.
■ (^) The color of the real body is insignificant.
■ (^) There should not be any lower shadow, though a very short one is acceptable.
■ (^) Its corresponding bullish version is the inverted hammer.
Psychology:
■ (^) The shooting star depicts buyers struggling to drive prices higher but they are
finally overwhelmed by the sellers, who drive prices back down near the low
of the candlestick. The bears are potentially in control.
Trigger, Stoploss, and Confirmation:
■ (^) If the preceding candlestick is of average height, the trigger would be midway
of the preceding candlestick (this is the standard shooting star entry).
■ (^) If the preceding candlestick low is close to midway, the trigger would be the
low of the preceding candlestick.
■ (^) To confirm the reversal, price needs to close below the trigger level.
■ (^) The stoploss is placed at the high of the reversal candlestick.
■ (^) A buystop entry order may be placed at the high of the reversal candlestick
only if there is evidence that the trend is still in effect.
See Figure 14.17. We observe an upper shadow of a shooting star extending
beyond the upper channel line on the hourly EURUSD chart. This extension above
the channel line represents a state of exhaustion that saw prices decline rapidly.