Shooting Star Pattern: How to Trade With Examples

13 Feb Shooting Star Pattern: How to Trade With Examples

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Trading Basics

Earlier in the article, we discussed the importance of volatility when deciding whether to take a signal or not. To exit the trade, we’ll use a simple time exit, and get out of the trade after 5 bars. The reason behind this is that mean-reverting markets like equities are more likely to revert the more extreme movements they’ve produced. When the market opens the next day, things seem to continue in the way most people had anticipated.

• The pattern turned into a bull pennant which ended up breaking out and continuing the bullish trend into a large megaphone pattern.
• It’s essential to act consistently and use technical analysis for support and resistance.
• These are stocks that we post daily in our Discord for our community members.

You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Opinions, market data, and recommendations are subject to change at any time. A lengthy upper wick emphasizes that buyers drove the price much higher than the open before being repelled.

How to Trade 3 Bar Reversal Pattern

When it comes to shooting stars in the financial markets, the direction of the existing trend is crucial in determining if it’s a bullish or bearish signal. The difference between the hammer and shooting star candlestick is that the Hammer looks like a “T” shape. Probably, the Gravestone Doji resembles the shooting star candlestick Forex the most – the only difference is that the opening price and closing price are equal to the Gravestone Doji. By the end of this article, you’ll have a firm grasp on what shooting stars are, what they tell us about supply and demand in a stock, and how to profitably trade them.

• 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.
• Trading this candle involves looking for confirmation of the reversal, such as a bearish candle following the pattern.
• The success rate of the Shooting Star Candlestick Pattern can be around 54 – 71%.
• As a price action trader, there are many things to look out for when using the shooting star pattern to identify a trading opportunity.

The Shooting Star and Morning Star patterns are not the same — understanding the distinction is crucial for traders. While both are significant patterns within the realm of candlesticks, they signal different market sentiments. The Shooting Star is a bearish reversal indicator appearing after an uptrend and is characterized by a short body with a long upper wick. The Shooting Star tells traders that the current uptrend may be weakening and a downtrend could be on the horizon. It’s a visual representation of a shift in market sentiment – from bullish to bearish. This pattern becomes more significant if it appears at a resistance level or after a prolonged price advance.

Trading the shooting star candlestick pattern with bearish reversal chart patterns

Basically, in both patterns, the candlestick opens low, trades higher, and closes low near the open — while the shooting star occurs in an upswing, the inverted hammer occurs in a downswing. Thus, a shooting star candlestick has a long upper wick, a small real body that is positioned near the lower end, and little or no lower wick. The shooting star and hanging man also share similarities but differ in appearance and market positioning. The shooting star is a bearish pattern occurring after an uptrend, indicating a potential reversal as bears managed to pull the price down at the end of a trading session. In this article, we’ve had a closer look at the shooting star candlestick pattern.

Inside the flag, you’ll see several spinning tops and doji candlesticks. Shooting stars are the most effective when at the top of an uptrend. They signal that the bulls have lost control and the bears have taken over. After a 15% rally over three months, the trader is looking for an opportunity to enter a short position in the event of a reversal. A shooting star appears with the high of the upper tail just above $80, near a previous resistance area. The color of the candlestick doesn’t have an impact on its indication because the bearish reversal indication is derived from the long upper wick with a small body and little to no lower wick.

In addition, the MACD indicator also began to move into the negative zone. 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. This candlestick pattern has a success rate of around 69%, while it predicts the possibility of a bearish trend reversal during an ongoing bullish trend. However, this low success rate is because this candlestick pattern is insufficient to forecast a price trend reversal on its own. Thus, traders need to look for other indicators that confirm the results of this candlestick pattern.

Can Candlestick Patterns Be Time-Sensitive?

Nonetheless, the red color shows that sellers pushed hard enough to drive the price below the open. This shooting pattern gets its name from its shooting star-like appearance on a candlestick chart where the price is coming down to earth. What we really care about is helping you, and seeing you succeed as a trader.

For example, with the shooting star candlestick pattern, you can enter a trade at the swing high preceding the breakout of the neckline. The pattern is formed during a downtrend and signals a possible reversal, as a result of which the price reaches a strong support level, at which pending purchase orders have already been formed. Candle’s real body is in the lower price range and has a long upper wick. A shooting star candlestick is typically found at the peak of an uptrend or near resistance levels. Shooting star candlesticks consist of a smaller real body with a longer upper wick and no lower shadow.

Shooting star candlestick trading FAQs

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Belt Hold Line Definition The belt hold line candlestick is basically the white marubozu and black marubozu within the context of a trend. The price target for the shooting star is equal to the size of the pattern (the length of the candle). If you are able to identify the presence of these signals, then you should short the security. Noice the red candle that follows immediately after the annotated shooting start?

Let’s start decoding these mysterious candlestick clues to make smarter moves in the market. Both traders would set a target price, keeping in mind that shooting stars can signal both short- and intermediate-term reversals. Note that the existence of a shooting star candlestick doesn’t guarantee a reversal.

When trading the shooting star signal with resistance levels, I like to see the wick, at least, touch the resistance level (assuming the level is chosen and drawn correctly). If you don’t already have a profitable trading system that works well with candlestick patterns, the next best thing to do is to combine them with other market indicators. Larger candlesticks are more significant as far as what they can tell us about current market sentiment. Therefore, a relatively large shooting star candlestick is a more significant bearish signal than a relatively small one. Some of the filters that I use to qualify a good shooting star make taking the entry completely different than the standard method. In my experience, these filters have drastically improved my strike rate with the shooting star candlestick pattern.

This indicates a rejection of higher prices and suggests that a reversal might be forthcoming. Let’s learn how professional crypto and stock traders make money with this single candlestick pattern. Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training. We teach day trading stocks, options or futures, as well as swing trading. Our live streams are a great way to learn in a real-world environment, without the pressure and noise of trying to do it all yourself or listening to “Talking Heads” on social media or tv.

How to Trade a W Pattern

Since we are looking for moves to the downside, we want to trade the Shooting Star using resistance levels. Now, the shooting star looks similar to the inverted hammer and hanging man patterns you may see. The shooting star candlestick candle has a small body as the price closes near the open price. It also has little to no lower wick as the price also closes near its low price. If the price closes above the open price then it will form a green candle and if it closes below it will form a red candle. Now that we have the shooting star confirmation criteria behind us, we will combine these three basic steps into a trading strategy.