If we analyze the conditions needed to form the shooting star, we can see that this pattern is pretty
much the opposite of the hammer.
First of all we have a small real body just like the hammer.
This time the real body is at the bottom end of the session's range.
We have a very small or no lower shadow and a long upper shadow that should be at least twice the size
of the height of the real body. Even for the shooting star,
the colour is not important. Now last condition, as you might have guessed so far, is usually the most important
one.
The shooting star requires that the market is in an uptrend.
So what does this candle say about the fight between buyers and sellers?
The small lower shadow and the long upper shadow
let us know that there hasn't been much action below the opening price and the buyers started very soon
to push the price up. By the end of the session,
sellers step into the market and the price goes down, closing near the opening price. In a short and
easy way, we can say that buyers were in control at the beginning but sellers have been stronger by the
end of the session.
Here we have euro-dollar on a daily chart. I have highlighted in green all the candlesticks that have
the same shape of a shooting star, but that I would not have considered because they don't satisfy last
condition.
That means that they don't appear during a clear uptrend. In yellow, you can see real shooting stars.
They satisfy all the conditions. Then I have highlighted one in a kind of light purple because I'm
not sure about that one.
It appears after a move up, even if the price is still lower than the last high that has been formed by
the first shooting star in yellow.
I think that at that point I would have looked for other clues to understand if it was a good signal
or not.
So let's analyze the price action before the shooting stars highlighted in yellow;
the price action of the shooting stars
and then we can combine them to draw our conclusions. Before the shooting star, buyers are completely
in control.
The price is clearly going up.
Then a shooting star appears. At the beginning of the shooting star,
buyers push the price higher.
This is not a surprise,
after all the price was going up before the shooting star.
So everyone is expecting that the price continues to go up.
The surprise comes when sellers step into the market and push the price back near the opening of the
session.
So putting it all together,
buyers have been too strong for sellers in last sessions, so you can see a lot of big green candles.
At one point,
a shooting star appears and is telling us that the sellers ended the session stronger than the buyers.
This is probably because at that point the price started to be convenient for sellers to open their
short positions.
I think that now you're starting to understand better how to analyze the patterns and the supply and
demand game on the market.
So you also understand why the color doesn't matter.
The important thing is that sellers recovered from a very bad start of the session.
So, as for the hammer, it is not about the color but about the size.
The longer the upper shadow, the shorter the lower shadow, the smaller the real body, the more meaningful
the shooting star will be.