What Are Shooting Star Patterns and How to Trade Them?

They have a small real body with little to now lower wick and a long upper wick. After determining the top and the pattern itself, it is necessary to wait https://g-markets.net/ for confirmation of a trend reversal. The breakout of the lower border of the ascending channel and the retest confirm that the market turned bearish.

• This creates a nice premise to short HP right in the beginning of an emerging bearish trend.
• It opens higher then trades much higher; however ends up closing near open price.
• However, the formation of a shooting star pattern on the rise may indicate an imminent short-term correction.
• Keep in mind that the shooting star could indicate negative reversal – in other words, market prices could go down.
• This implies that the price is about to reverse with even bigger strength.
• Typically, a reading of more than 20 indicates that the market is in a strong trend, if you use the standard setting for the length, which is 14.

Join thousands of traders who choose a mobile-first broker for trading the markets. Mr. Pines has traded on the NYSE, CBOE and Pacific Stock Exchange. In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives. Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts.

Best shooting star candlestick strategies

The volatility level in a market could have a significant effect on the performance of the shooting star or any pattern. Retests of the wick tend to occur when the wick is longer than normal. It is common for the market to reverse as soon as prices are deemed overbought, shooting star candlestick pattern as very few buyers are willing to buy at this level. Once you are able to identify the shooting star, you should look to open a short position on a break of the low of the candle. The shooting star has a small body and a very long upper candle wick.

That is, the candle’s closing price is close to the opening price, which is also indicated by the long tail of the star. This shooting pattern gets its name from its shooting star-like appearance on a candlestick chart where the price is coming down to earth. You might be shocked that you’ll lose money if you trade this pattern using traditional candlestick charting methods. After the advance, the shooting star opens and then strongly rises during the day. This indicates the same buying pressure seen over the last several periods. Progress is made during the day, even if the sellers come in and push the price back down to near the open, canceling the gains for the day.

What Is a Shooting Star Candlestick Pattern?

Then the hanging man, the evening star, and another shooting star are formed. The transition of the MACD into the negative zone and the impulsive breakout of the support level served as additional confirmation. The inverted hammer is a one-bar bearish continuation candlestick with a short real body, a long upper wick, and little to no lower wick.

In fact, there was so much resistance and subsequent selling pressure, that prices were able to close the day significantly lower than the open, a very bearish sign. You can learn about ‘real body’ in our Candlesticks Basics Guide. Following the advance, a shooting star opens and then rises strongly during the day.

How does the Shooting Star pattern look in real life?

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. As you can see in the example above, the MACD crossover did not happen in the exact price level of the shooting star candlestick. Instead, the crossover was confirmed a few candles later, which eventually signaled a trend reversal. Taking the above chart into account, there are several steps you need to follow in order to effectively identify and trade the shooting star candlestick pattern. In this article, we are going to cover all the basics you need to know in order to start using and identifying the shooting star candlestick pattern in forex trading. Japanese candlesticks are a popular charting technique used by many traders, and the shooting star candle is no exception.

• The only differences between that inverted hammer and the shooting star are that the inverted hammer occurs in a downtrend instead of an uptrend.
• The Bullish Bears team focuses on keeping things as simple as possible in our online trading courses and chat rooms.
• A shooting star is a candlestick pattern that consists of two candles and usually forms at the top.
• Trading foreign exchange on margin carries a high level of risk, as well as its own unique risk factors.

The shooting star candle stick pattern is a beneficial technical analysis tool to notice a bearish divergence in the market. The shooting star indicator may be useful for traders gone short on a market looking for an exit, or traders looking for an entry point to go long. The candle that forms after the shooting star is what confirms the shooting star candle. The next candle’s high must stay below the high of the shooting star and then proceed to close below the close of the shooting star. Ideally, the candle after the shooting star gaps lower or opens near the prior close and then moves lower on heavy volume.

How to trade when you see the Shooting Star candlestick pattern?

Finally, you can use it to place a stop-loss or a take-profit when trading. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey.

At the same time, we place a stop loss order at the highest point of the shooting star – above the upper candlewick. In order to trade the hammer candle, you want to wait for the low of the wick to be broken to the downside. On the chart above we get that hard break just two candles later. You can enter there, then set your stop at the high of the hammer candle, or the shooting star candle, whichever you prefer. A hammer candlestick pattern is almost identical to a shooting star.

Our maximum loss will be equal to the distance between the level we short HPQ and the level of the stop loss order. Get $25,000 of virtual funds and prove your skills in real market conditions. No matter your experience level, download our free trading guides and develop your skills.

Similar to other price action trading strategies, the shooting star is one of the trading tools that can’t be dismissed in the trading world. Alternatively, you could place a stop-loss slightly above the upper shadow especially when you are shorting the financial asset. For example, if you short an asset, you could place a stop-loss above the upper shadow. First, it has a long upper shadow and a small or no lower shadow.

How to Interpret Shooting Star Candlestick Patterns

Keep in mind that the shooting star could indicate negative reversal – in other words, market prices could go down. If you want to take advantage of falling prices, you can do so through other derivatives. The shooting star pattern is one of the most common and popular candlestick patterns. With their clear and colorful way of representing market action, candlestick charts have come to dominate among new traders who wish to spot patterns in the market.