The Shooting Star is a popular bearish candlestick pattern that can be a powerful trend reversal signal. It is considered to be the polar opposite candlestick of a bullish Hammer. It generates the highest conviction when it is posted at the end of a decisive uptrend phase. It signifies exhaustion in the buying pressure before a reversal into a negative trend.
After the Open, the market continues to surge to a new high in the trend. There is subsequently a peak in the price with a rejection of the move. The market then falls below the Open price to then Close at or around the Low of the session. If the price then continues to fall, the formation of a new trend can take hold.
The Hanging Man candle is also a bearish trend reversal signal, however, comes with lower conviction than the Shooting Star. It is a candle that needs a subsequent confirmation move lower to have conviction.
Having been trending higher in previous sessions, the price Open is at or near the current session High. Selling pressure takes hold almost immediately. However, there is a late intraday rally as the buyers recover. The price Close is at, or near to, the session High. Although the selling pressure has not been sustained, it signals that the buyers are not as strong as in previous sessions. A reversal could be coming.
| SHOOTING STARS | |
| Price action | An intra-period rally before a sell-off and a Close below the candlestick Open. |
| Time horizon | Shooting Stars can be effective across all time scales from 5-minute charts up to hourly, daily and weekly. The longer-term the horizon, the higher the conviction. |
| Psychology | A trend of buying pressure has become exhausted as the market rejects a new high. A close at the period low suggests a reversal into a new selling phase. |
| Confirmation | Ideally, the price continues lower for the next candlestick to confirm the reversal. |
| Conviction | Closing at the period low implies that the sellers have convincingly won the session. The longer the upper shadow of the candlestick, the higher the conviction for a reversal lower. Ideally, there would be little or no lower shadow to the candlestick, with the Close near or at the Low. A Shooting Star can have a Close slightly above the Open, but this would reduce the conviction in the reversal. |
| Aborting the pattern | If subsequent candles have the price breaking above the High of the Shooting Star then this would abort the pattern. |
| Hanging Man | |
| Price action | The price gaps higher at the Open but the move is rejected and selling pressure pulls the market decisively lower. This forms a long lower shadow of the candlestick. An intraday rally from the Low recovers the price to a Close just below the Open. |
| Time horizon | As with Shooting Star candlesticks, the Hanging Man works on all time horizons. |
| Psychology | The prevailing trend is becoming exhausted and some sellers are initially tempted. Although the selling pressure cannot be sustained, it is a sign that the uptrend is weakening. It is an indication of a potential reversal to a more negative outlook. |
| Confirmation | The Close of the next candle is decisively below the Close of the Hanging Man. |
| Conviction | A Hanging Man is a relatively lower conviction signal. There is a hint of selling pressure but nothing yet sustainable. For the conviction to be strong, the next candle needs to have a Close below the Low of the Hanging Man. |
| Aborting the pattern | A move above the High of the Hanging Man, especially on a Close above the High. |
