Shooting Star Candlestick Pattern: Definition, Trading Guide

It simply needs to show that there was selling pressure coming at the highs or lows of the reversal. The best shooting star strategy will address this issue and will show you how to catch a falling knife without cutting off our fingers. The shooting star candlestick pattern can help you how to spot a top in the market and how to trade it properly. With the MACD confirmation and the shooting star pattern – a selling position should be made with a stop loss above the highest level of the shooting star candlestick.

The shooting star shows the price opened and went higher (upper shadow) then closed near the open. The following day closed lower, helping to confirm a potential price move lower. The high of the shooting star was not exceeded and the price moved within a downtrend for the next month. If trading this pattern, the trader could sell any long positions they were in once the confirmation candle was in place. The primary difference between a shooting star candlestick and an inverted hammer candlestick lies in the context in which they appear. Shooting star candlesticks appear at the end of an upward price movement and mark the beginning of a trend reversal to a downward price movement.

  1. Developing a trading strategy around the shooting star pattern is like steering a vessel through a sudden shift in the winds, demanding sharp judgment and timely response.
  2. When combined with the reversal shooting star pattern, it makes for a killer trading strategy.
  3. The Shooting Star formation is considered less bearish, but nevertheless bearish when the open and low are roughly the same.
  4. You can add a buffer of a few pips if you wish to protect against possible false breakouts.
  5. Now, the trade is protected against rapid price moves contrary to our trade.

However, as the market now has gone up for quite some time, more and more people begin to doubt that it will continue that way. Selling pressure increases, and pushes the advancing market back again. As a result, the current candle both opened and closed in the lower half of the range, and has a tall wick to the upside.

It is intended to be traded on the forex markets but theoretically should work on all… The third main advantage of shooting star candlesticks is their usefulness in helping predict upcoming price trends. A shooting star candlestick is structured with a real body, a long upper tail or wick and a short or no lower tail or wick. A shooting star candlestick’s structure represents the rapid downward movement of the price toward the close of the market. For a candlestick pattern to be considered a shooting star, the upper wick must be at least twice the length of the body of the candlestick. The inverted shooting star is a bullish analysis tool, looking to notice market divergence from a previously bearish trend to a bullish rally.

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Benefits of the shooting star pattern in technical analysis

As the market continues in the direction of the uptrend, the market sentiment is bullish. Most people believe that the market is going to continue making new highs, and as such, they’re holding long positions. In general, the longer the wick the stronger the reversal, since the https://g-markets.net/ long wick signals the inability of the bulls to secure a high close. Deepen your knowledge of technical analysis indicators and hone your skills as a trader. As you can see, this creates an overall bearish structure because prices were unable to sustain their higher trade.

Shooting Star Pattern: FAQs

An inverted shooting star pattern is more commonly known as an inverted hammer candlestick. It can be recognized from a long upper shadow and tight open, close, and low prices — just like the shooting star. The difference is that the inverted hammer will have a bear run prior to the candle you’re looking for. shooting star trading The third key step in trading with shooting star candlestick is to decide on a price target. The price target must be the length of the candlestick pattern to gain maximum returns. As shown in the image the length of the candlestick is measured from the base of the body to the tip of the upper shadow or wick.

So, below, we are going to show you how to confirm a shooting star trend reversal with these tools. Continuation candlestick patterns represent the continuation of the existing active trend. Examples of continuation candlestick patterns include doji, spinning top, high wave, falling window, rising three methods, falling three methods etc.

Treating the shooting star pattern as the sole guide for trading decisions is like sailing a ship guided only by stars, neglecting the importance of sea currents and weather. Although the shooting star is a significant tool for traders, it comes with its own set of limitations and potential risks that need careful consideration. In summary, trading based on the shooting star pattern is a delicate balance of caution, validation, and precise execution.

Steps For how to use the Shooting Star or Hammer candle to buy/sell stocks

We have a small candle body and a big upper candlewick, which confirms the shape of the pattern. Now that you have a good understanding of what the shooting star and a hammer candlestick pattern are, let’s take a look at how to use them to buy/sell stocks. It is important to mention that the shooting star candlestick pattern is even more reliable when it develops after three consecutive bullish candles. They both have long upper shadows and small real bodies near the low of the candle, with little or no lower shadow. A shooting star occurs after a price advance and marks a potential turning point lower. An inverted hammer occurs after a price decline and marks a potential turning point higher.

Candlestick Pattern

When the RSI rises above 70, then the market is essentially in overbought mode and a bearish trend reversal is expected. When the RSI falls below 30, then the market is in an oversold condition and a bullish trend reversal is likely to happen. This is why confirmation is needed and you have to use other momentum technical indicators. Two of the most important trend reversal indicators are the RSI and MACD indicators.

Shooting Star vs. Inverted Hammer

The green body signifies that the opening price is lower than the closing price, although the two are very close. The red body signifies that the opening price is greater than the closing price. The shooting star candlestick is considered one of the most reliable candlestick patterns. The accuracy of shooting star candlestick patterns varies depending on the candlestick patterns that follow the shooting star candlestick. The trend is confirmed to be a bearish trend only if the candlestick pattern that follows a shooting star depicts a price decline. Sometimes the candlestick pattern that follows a shooting star pattern shows a price increase.

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For example, if you think that a shooting star at the top of an uptrend means possible reversal, you can test the bearish bias using Fibonacci retracement. This indicator can pinpoint the degree to which a market will move against its current trend. It is often questioned about the difference between a shooting star formation on a forex pair, stock or commodity. A shooting star candlestick pattern will offer the same signal/s regardless of the instrument. One of the reasons for this is the unique structure – a small body with a high upper candlewick. A shooting star is a bearish reversal chart pattern that is characterized by a long upper wick, little or nonexistent lower wick and a small body.

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