Trading the Shooting Star Pattern

The only thing that matters is the candlestick’s location, prior trend, and structure. In this post, you’ll learn about the shooting star candlestick pattern’s structure, significance, trading psychology, and trading guide. The shooting star is one of the key patterns in candlestick analysis. Trading this candlestick allows traders to make money during short-term trading.

In technical analysis, if the price goes up and then closes below 50% of the total candlestick’s range, it is a sign of the strength of sellers. An evening star pattern is a bearish 3-bar reversal candlestick patternIt starts with a tall green candle, then a… Key takeaways A morning star pattern is a bullish 3-bar reversal candlestick patternIt starts with a tall red candle,… First, the implication is for lower prices, therefore we want to look for entries to short. Since the prices were initially rejected at the high of the shooting star, we will look to place the stop-loss at the recent swing high (red horizontal line on the chart).

Shooting Star Candlestick Pattern

It is not limited to a particular instrument as it is a function of trader’s sentiments and price action. It is more effective when it appears after three or more consecutive rising candles that form higher highs. However, it may also occur during periods of rising prices even if the recent candles were bearish.

A candlestick pattern is more significant when it occurs near an important level signaled by other forms of technical analysis. The shooting star pattern consists of two candlesticks with a small gap between them. The pattern signals the increased influence of the bears and the imminent reversal at the top. The key point is that this candlestick needs confirmation by other patterns or indicators. The quality of trading and potential profit depends on competent analysis, the correct identification of the trend, and the psychology of market participants.

Is a shooting star candlestick bullish or bearish?

Like any other candlestick pattern, the shooting star pattern cannot be used in isolation to make a trading decision. The pattern does not provide accurate insights for trading price reversals on its own. Therefore, it should always be used with other indicators or confirmation candles. In contrast, the inverted hammer is a bullish reversal candlestick pattern that occurs at the bottom of a downtrend.

• Such a setup is often referred to as a failed bearish reversal, as bears are overpowered by bulls coming back into the market and pushing the prices higher.
• The relative strength index is one of the most simple to use trend reversal indicators in technical analysis.
• A similar structure is observed with the Inverted Hammer pattern however, the Inverted Hammer relates to a bullish reversal signal as opposed to a bearish reversal signal.
• At the end of the trading session, the sellers push the price down near the open.

There is a long upper tail or upper shadow, a comparatively much shorter lower tail or shadow, and a noticeably short body with the price closing below the candle’s opening price. This candlestick guide focuses on how to find and interpret the shooting star candlestick pattern. We also distinguish between the shooting star and inverted hammer candlestick pattern, sometimes referred to as an inverted shooting star. The uptrend accelerates just prior to the formation of a shooting star. 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.

Shooting Star Pattern Candlestick Psychology

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The inserted hammer indicates that the price has bottomed out and is likely to move higher as part of an emerging bullish momentum. The emergence of a more bearish candle after the shooting star candle asserts a change in momentum from bullish to bearish. Afterward, the price tanks with force, signaling the bearish reversal. Traders who opened short positions after the close of the confirmation candle ended up accruing significant pips as the price tanked significantly.

How does the Shooting Star pattern look in real life?

In such an instance, the shooting star formation was correct in its prediction. The price takes a sharp dip to the downside over the time frame of the next three candlesticks that form before resuming the overall trend to the upside. A trader who sold short upon seeing the shooting star pattern could’ve quickly pocketed a profit on a short-term, intraday trade. This tool is not always a highly accurate pattern in day trading.

The difference between the hammer and the shooting star is that the hammer is a short-bodied candle with a long lower wick and little to no upper shadow. In contrast, the shooting star is a short-bodied candle with a large upper shadow and little to no lower shadow. Because shooting star candlestick is a single reversal pattern, it is not very potent. In other words, candlestick patterns with more than one candle are stronger than shooting stars.

Strategy 3: Shooting Star With ADX

If the prior trend is bearish, this will not be a shooting star pattern. The Bullish Bears trade alerts include both day trade and swing trade alert signals. These are stocks that we post daily in our Discord for our community members. This candle helps in confirming the price reversal and indicates that the price will continue to fall. The long upper shadow indicates that the buyers are losing position as the price drops back to the open.

Its shape gives the pattern a lot of attention as the wick always sticks out from the rest of the price action. Trading the shooting star pattern includes identifying https://g-markets.net/ order entry, stop loss, and take profit levels. Unlike the evening star, the bearish shooting star is a weak trading signal and does not always work out.

The shooting star is a single bearish candlestick pattern that is common in technical analysis. The candle falls into the “hammer” group and is a first cousin of the – hanging man, hammer, and inverted hammer. If you’re unfamiliar with any of these patterns, check out our Quick Reference Guide.

Traders should be careful not to confuse the shooting star pattern with an inverted hammer candlestick pattern. But the inverted hammer indicates bullish as opposed to bearish reversal. Also, the inverted hammer is often seen at the bottom of a downtrend. A shooting shooting star candlestick pattern star candlestick is a unique charting pattern that comes at the end of an uptrend and indicates a potential trend top area followed by a trend reversal. This bearish reversal candlestick has a long upper shadow, little (or no) lower shadow, and a small body.

Similar Candlestick Patterns

A shooting star is a candlestick pattern that consists of two candles and usually forms at the top. Professional, data-driven forex traders short after the price moves above and then back below the shooting star high, setting a stop loss of one ATR. The Harami pattern is a 2-bar reversal candlestick patternThe 2nd bar is contained within the 1st one Statistics to… For instance, the price may consolidate in the area of the shooting star. If the price ultimately keeps on rising, the uptrend is still intact. When the RSI rises above 70, then the market is essentially in overbought mode and a bearish trend reversal is expected.