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The Power of Stars The Power of Stars: Lesson 4

1. The document discusses various candlestick patterns that can indicate reversals in market trends, including the Northern Star, Southern Star, Northern Doji Star, Southern Doji Star, Shooting Star, and Inverted Hammer. 2. These patterns consist of 2-3 candlesticks that form specific configurations, such as a long candlestick followed by a small candlestick that gaps the first. 3. The patterns can be used as reversal signals or support/resistance levels, with accuracy increased by factors like gaps between candlesticks or changes in volume.

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66 views25 pages

The Power of Stars The Power of Stars: Lesson 4

1. The document discusses various candlestick patterns that can indicate reversals in market trends, including the Northern Star, Southern Star, Northern Doji Star, Southern Doji Star, Shooting Star, and Inverted Hammer. 2. These patterns consist of 2-3 candlesticks that form specific configurations, such as a long candlestick followed by a small candlestick that gaps the first. 3. The patterns can be used as reversal signals or support/resistance levels, with accuracy increased by factors like gaps between candlesticks or changes in volume.

Uploaded by

paolo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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The Power of Stars

Lesson 4
Stars
Introduction
Northern and Southern Stars
Northern and Southern Doji Stars
The Shooting Star and Inverted Hammer
Stars
A Star is a small real body that gaps away
from the preceding large real body.
The star can be either green, red or a
doji. The star does not have to gap the
preceding candlestick’s shadows, only
the real bodies can’t overlap. Stars
can be used as reversal signals when
trading the market. The reason being,
after a sharp incline or decline in the
market a star usually represents a
stalemate between the bulls (buyers)
and bears (sellers). Four reversal
patterns are comprised of stars. They
are:

1. Northern Stars
2. Southern Stars
3. Doji Stars
4. Shooting Stars
Lesson 4

Northern and Southern Stars


The Northern Star
The Northern Star is a top reversal pattern,
therefore, it must come at the end of a bullish
trend. There are three candlesticks that
comprise this pattern. They are:

1. The First Candlestick is a long green real


body. Indicating that the bulls (buyers) are
still in control of the market.
2. The Second Candlestick is a small real
body that gaps the first candlestick’s real
body. Indicating that the bulls are losing
momentum to the bears (seller).
3. The Third (last) Candlestick is a red real
bodied candle that recaptures most of the
ground that the first candlestick gave up. In
other word, protrudes deeply into the first
candlesticks real body. Indicating that the
market has reversed and the bears are now
in control of the market.

Note: The main criteria is that the second candlestick should be a spinning
top and the last candlestick should protrude well into the first
green candlestick.
Uses for the Northern Star
The primary use for the Northern star is to
offer us a top reversal signal, however, the
pattern can be used as a resistance level.
The highest high of the three candlesticks
that form the Northern star pattern should
offer the support level.
Increasing the Odds of
Validity
There are several factors that increase the likelihood of the
Northern Star being a valid top reversal pattern. They
are:

 If all three candlesticks have gaps between them.


 If the last candlestick closes deep into the first
candlestick’s real body.
 If the trading volume on the first candlestick is far less
than the trading volume on the third (last) candlestick.
The reason being, the lack of volume on the first
candlestick would represent a reduction of buying power
and the increase of volume on the third (final)
candlestick would represent an increase in selling power.
Example of a Northern Star
The Southern Star
The Southern Star is a bottom reversal pattern,
therefore, it must come at the end of a bearish
trend. There are three candlesticks that
comprise this pattern. They are:

1. The First Candlestick is a long red real body.


Indicating that the bears (sellers) are still in
control of the market.
2. The Second Candlestick is a small real body
that gaps the first candlestick’s real body.
Indicating that the bears are losing
momentum to the bulls (buyers).
3. The Third (last) Candlestick is a green real
bodied candle that recaptures most of the
ground that the first candlestick gave up. In
other word, protrudes deeply into the first
candlesticks real body. Indicating that the
market has reversed and the bulls are now in
control of the market.

Note: The main criteria is that the second candlestick should be a


spinning top and the last candlestick should protrude well
into the first red candlestick.
Uses for the Southern Star
The primary use for the Southern star is to
offer us a bottom reversal signal, however,
the pattern can be used as a support level.
The lowest low of the three candlesticks
that form the Southern star pattern should
offer the support level.
Increasing the Odds of
Validity
There are several factors that increase the likelihood of the
Southern Star being a valid bottom reversal pattern.
They are:

 If all three candlesticks have gaps between them.


 If the last candlestick closes deep into the first
candlestick’s real body.
 If the trading volume on the first candlestick is far less
than the trading volume on the third (last) candlestick.
The reason being, the lack of volume on the first
candlestick would represent a reduction of selling power
and the increase of volume on the third (final)
candlestick would represent an increase in buying
power.
Example of a Southern Star
Lesson 4

Northern and Southern Doji Stars


The Northern Doji Star
The Northern Doji Star is a top reversal pattern,
therefore, it must come at the end of a bullish
trend. There are three candlesticks that
comprise this pattern. They are:

1. The First Candlestick is a long green real


body. Indicating that the bulls (buyers) are
still in control of the market.
2. The Second Candlestick is a doji that gaps
the first candlestick’s real body. Indicating
that the bulls are losing momentum to the
bears (sellers).
3. The Third (last) Candlestick is a red real
bodied candle that recaptures most of the
ground that the first candlestick gave up. In
other word, protrudes deeply into the first
candlesticks real body. Indicating that the
market has reversed and the bears are now
in control of the market.

Note: If the doji candlestick has gaps on both sides of it, the pattern
is considered to be an island. These are very rare, but if
you ever see an island jump on it and ride the reversed
trend.
Uses for the Northern Doji
Star
The primary use for the Northern star is to
offer us a top reversal signal, however, the
pattern can be used as a resistance level.
The highest high of the three candlesticks
that form the Northern star pattern should
offer the resistance level.
Example of a Northern Doji
Star
The Southern Doji Star
The Southern Doji Star is a bottom reversal
pattern, therefore, it must come at the end of
a bearish trend. There are three candlesticks
that comprise this pattern. They are:

1. The First Candlestick is a long red real body.


Indicating that the bears (sellers) are still in
control of the market.
2. The Second Candlestick is a doji that gaps
the first candlestick’s real body. Indicating that
the bears are losing momentum to the bulls
(buyers).
3. The Third (last) Candlestick is a green real
bodied candle that recaptures most of the
ground that the first candlestick gave up. In
other word, protrudes deeply into the first
candlesticks real body. Indicating that the
market has reversed and the bulls are now in
control of the market.

Note: If the doji candlestick has gaps on both sides of it, the pattern
is considered to be an island. These are very rare, but if you
ever see an island jump on it and ride the reversed trend.
Uses for the Southern Doji
Star
The primary use for the Southern star is to
offer us a bottom reversal signal, however,
the pattern can be used as a support level.
The lowest low of the three candlesticks
that form the Southern star pattern should
offer the support level.
Example of a Southern Doji
Star
Lesson 4

The Shooting Star and


Inverted hammer
The Shooting Star
The shooting star is a single
candlestick top reversal
signal that has a small
real body at it’s low and
has a long upper shadow.
Since it is a top reversal
pattern, it must come
after a bullish trend.

Note: The color of the real


body is not important.
Pros and Cons of Shooting
Stars
Pros Cons

The shooting star becomes more Since the shooting star is a single
accurate if there is no gap candlestick reversal signal, it
between it and the previous might not be as accurate as
candlestick. Also, keep in mind the Northern star pattern. Nor
that if the shooting star has no should it be used as a
real body it is called a resistance level.
gravestone doji which is more
bearish than the shooting star.
Thus making it a more
accurate signal.
Example of a Shooting Star
The Inverted Hammer
The inverted hammer is a
single candlestick bottom
reversal signal that has a
small real body at it’s low
and has a long upper
shadow. Since it is a
bottom reversal pattern, it
must come after a
bearish trend.

Note: The color of the real


body is not important.
Example of an Inverted
Hammer

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