The real body of a Shooting Star, small and situated at the lower end of the trading range, indicates a close near the open. Its color (red or green) further adds context to the market’s sentiment. A red body strengthens the bearish outlook, while a green one slightly weakens it. Moreover, in choppy or range-bound markets, the value of shooting star patterns may be diminished, making them harder to interpret accurately. The long upper shadow suggests buyers are losing ground as the price retreats to the open. The next candle gaps down and moves lower with significant volume, confirming the price reversal and suggesting further decline.

1. You have the option to trade stocks instead of going the options trading route if you wish.
2. Consequently, the open and close price points are close to one another.
3. The Inverted Hammer and Shooting Star candlestick patterns are both essential signals in technical analysis.
4. Let’s now take a closer look at two typical scenarios wherein the shooting star formation is often seen.
5. Therefore, it should always be used with other indicators or confirmation candles.

Modified Hikkake Pattern: Learn How To Trade It

They are both patterns that are found at the end of an uptrend, and signal a bearish market reversal. For our example, let’s take a look at how you can trade pivot levels with a shooting star pattern. By identifying a pivot, we know where to expect a shooting star, creating a potential bearish reversal.

This article delves into the essence of the Shooting Star candlestick, its characteristics, and how traders can effectively leverage this pattern for trading decisions. The Shooting Star serves as an indicator of resistance levels and aids in formulating exit strategies. Its appearance at resistance points signals that the upward price movement might be halted, providing traders an opportunity to exit long positions or initiate short trades. The key is to look for these patterns in the right context — primarily after an uptrend. The long upper wick indicates a failed attempt by buyers to continue the upward trend, suggesting bearish sentiment.

Shooting Star Trading Example  – Counter Trend Setup

This signals a reversal in trend, indicating it may be an optimal time to enter a short position. The hammer is visually defined by a long lower shadow and a small candle body near the top of the candlestick, and it is a bullish reversal pattern. It’s the shooting star patterned mirrored, and signals a bullish direction instead of a bearish direction as an upcoming direction.

So now we have protected the position shooting star forex pattern in case the trade begins to move against us. Fortunately for us, the price action started to move lower precipitously following the breakout signal. Our exit plan calls for monitoring the price action closely and waiting for a candle close above the nine period simple moving average line.

Yes, the Shooting Star pattern can be used in all financial markets, including stocks, bonds, commodities, and currencies. However, traders should be aware of each market’s unique characteristics and adjust their strategies accordingly. The Inverted Hammer pattern indicates that the price might start going up after a drop. On the flip side, the Shooting Star shows that prices might start going down after rising.

The chart above clearly shows that the shooting star pattern emerges as soon as the RSI reading is above 70, asserting overbought conditions. The pattern forms at an area of strong resistance indicate that the price is likely to edge lower from the bullish setup. One of the key advantages of the Shooting Star candlestick pattern is its straightforward identification on price charts. The Hanging Man is a bearish reversal pattern that can also mark a top or strong resistance level. The candlestick for your chosen forex currency pair would open, close, and find a low at similar price points. In this case, the shooting star could be interpreted as the closer the price points, the tighter the shooting star, and the more likely that the currency pair you’re speculating on will fall.

1. You should consider whether you can afford to take the high risk of losing your money.
2. However, the shooting star’s cousin, the inverted hammer, is a bullish market reversal which looks identical to the shooting star pattern.
3. Notice how the price moves higher in a nice stairstep fashion with successively higher highs and higher lows during its progression.
4. A trading journal allows traders to record their trades, including entry and exit points, reasons for taking the trade, and outcomes.
5. The stop loss on the trade will be set at the high of the price bar that breaks below the trendline.

What is the difference between a hammer and a shooting star?

At the same time, we place a stop loss order at the highest point of the shooting star – above the upper candlewick. It is important to mention that the shooting star candlestick pattern is even more reliable when it develops after three consecutive bullish candles. For example, you can have a hammer candlestick pattern at the top of an uptrend which will also signal a reversal. In other words, the wick (tail) doesn’t have to point in the opposite direction of the new trend. It simply needs to show that there was selling pressure coming at the highs or lows of the reversal.

Since we are looking for moves to the downside, we want to trade the Shooting Star using resistance levels. The Shooting Star pattern is also a mirrored version of the Hanging Man candlestick pattern. This written/visual material is comprised of personal opinions and ideas and may not reflect those of the Company. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions.

While the shooting star pattern might indicate a potential sell-off, it can be invalidated if the candlestick pattern is followed by a continuation of the uptrend. However, this is less frequently the case as that uptrend is followed by a price correction towards the downside after such a candlestick pattern has been formed. That’s why it is a pattern in the first place and not just a regular, irrelevant candlestick. Moving Averages serve as dynamic support and resistance levels and can help traders confirm the strength of a Shooting Star signal.

For this reason, traders use this candle to enter short trades on the assumption that the bullish move is running out of steam. We will plot a bearish channel by connecting the most prominent swing highs within the downtrend, and then run a parallel of that line off of the lower swing points. You can see the created bearish channel that is plotted with the two downward pointing trendlines. The light blue line shown on the price chart is our nine period moving average line that serves as the exit signal.

If you find yourself overwhelmed or new to candlestick patterns, the best way to get a firm grasp of the strategies is through deliberate practice. Traders should consider the timeframe in which they are trading and adjust their strategies accordingly. The interpretation of the Shooting Star pattern may vary depending on the timeframe being analyzed. Traders should also practice sound risk management and set stop-loss orders to limit their losses.