Shooting star candlestick

A shooting star is a candle with a small body at the lower end of its range, a long upper wick and little or no lower wick. It counts only after an advance. The same shape after a decline is a different pattern – an inverted hammer.

The pattern comes from Japanese candlestick charting, which Steve Nison introduced to Western traders. The story of the candle is short: buyers took price to a new high, and sellers returned it to where the period started.

On markets with daily sessions the candle often opens with a gap above the previous close. Crypto trades around the clock, so the open usually sits at the previous close and no gap is needed.

• Prior trend – price has been rising: several rising candles or a run of higher highs.
• Body – small and at the bottom of the candle's range.
• Upper wick – at least twice the length of the body.
• Lower wick – very short or absent.
• Colour – the body can be rising or falling. A falling body is read as slightly more bearish, because price closed below the open.

The candle carries more weight at a known resistance level, after a long run, or when the RSI is in overbought territory. Volume above the recent average adds to the case. Replay mode on Charts lets you step through past advances one candle at a time and see what followed each shooting star.

• Confirmation – wait for the next candle to close below the low of the shooting star. Without it the candle is a warning, not a signal.
• Entry – short on that close, or on a retest of the shooting star's low from below. Holders of a long position often tighten the stop or take part of the profit instead.
• Stop – above the high of the upper wick. If price trades above that high, the pattern has failed.
• Target – the nearest support, such as the previous swing low, or a fixed multiple of the risk.

The two candles have the same shape: a small body at the low and a long upper wick. The difference is where they appear. A shooting star forms after an advance and is read as bearish. An inverted hammer forms after a decline and is read as a possible bullish reversal.

The opposite shape follows the same rule. A small body at the top with a long lower wick is a hammer after a decline and a hanging man after an advance.

A gravestone doji also has a long upper wick, but its open and close are at almost the same price, so there is no visible body. A shooting star has a small but clear body. Both show rejection of higher prices after an advance, and traders ask both for the same confirmation: a lower close on the next candle.

• Ignoring the trend – the candle means something only after a clear advance. Inside a sideways range it is noise.
• Entering without confirmation – a candle with a long upper wick often appears in the middle of a strong trend, and price continues higher.
• Accepting a short wick – if the upper wick is not at least twice the body, it is an ordinary small candle.
• Placing the stop inside the wick – the high of the candle is the level that cancels the idea. A stop below it is hit by a normal retest.
• Reading it on very low timeframes – on one-minute charts the shape appears constantly and carries little weight.