Definition - In the Bearish Shooting Star, traders will see a white body then closely followed by an Inverted Hammer - in this pattern, the body will be small whilst having a long upper shadow. Although there are similarities between this and the Bullish Inverted Hammer pattern, there is a key difference in that the Shooting Star signals a bearish trend and is found in an uptrend.
- On the first day, a white candlestick forms in a market that is experiencing a prevailing uptrend.
- At the lower end of the trading range, a small body then appears on the second day - the colour of this body is not relevant.
- On this second candlestick, the upper shadow must be at least double the size of the body.
- In terms of a lower shadow, this will be little to non-existent.
Patterns and Flexibility
For the upper shadow to be double the length of the body, the body has to be small; however, it must be at least average for a candlestick. In a perfect scenario, the lower shadow will be small. In relation to the first candlestick, the top of the Inverted Hammer should be higher.
Behaviour of Trader
Since the pattern takes place in a bullish market, the white candlestick seen on the first day supports the trend and doesn’t present any major concerns. When the Inverted Hammer comes in on the second day, the market opens near the low but then a rally changes the price direction. Despite trying, the bulls are overpowered and the price closes near the low of the day. For any bulls in profit, they will consider securing their positions.
Sell/Stop Loss Levels
For there to be confirmation, the price must cross below the confirmation level which, in this case, will be considered as the low of the body of the Inverted Hammer. On the other hand, the last high will be used for the stop loss level. If the price rises after the bearish signal, the stop loss will be triggered if there are two consecutive days of highs above the stop loss level. Of course, this will be assuming that there is no bullish pattern detected.