I am going to use Wellpoint as a current, real-time example of a shooting star bearish reversal candle which appeared to confirm lower on Thursday. The purpose of this post is more for educational purposes, though, for those of you who would like to learn more about candlestick theory.
In Japanese candlestick terminology, a shooting star looks exactly the same as an “inverted hammer,” (literally a hammer flipped upside down) in terms of outward appearance. However, a key difference is their respective placement on the chart. After a prior steep downtrend, the inverted hammer can actually signal a potential bullish reversal coming, whereas the shooting star is the term given to the same candle after a prior uptrend, and signals a potential bearish reversal.
A few elements of the shooting star (and inverted hammer):
- The upper “shadow” (wick) of the candle is longer than the real “body” (the head of the hammer, so to speak).
- There is no, or a very limited, lower “shadow,” below the real body of the candle.
- A true shooting star (or inverted hammer) is going to “gap” away from the prior trend, via not overlapping the prior day’s price range.
- The larger the upper shadow, the more prominence the candle takes on.
- There must be an established prior trend in order for the a reversal candle to take on any type of significance.