Shooting Star Candlestick: What It Is and How to Trade It

The pattern signals the increased influence of the bears and the imminent reversal at the top. There are several ways to trade a shooting star candlestick pattern. This makes it a crucial pattern for traders looking to identify and act on potential market reversals. This method reduces the risk of entering a trade based on a false signal, thus increasing the probability of a profitable trade. However, it may result in missed opportunities, especially if the market moves quickly after the shooting star pattern forms. Trading the shooting star candlestick pattern requires a strategic approach to maximize its effectiveness.

1. The first signal for a price reversal is a shooting star pattern.
2. The timing factor can lead to different readings of the same market.
3. While the shooting star candlestick pattern is a bearish reversal signal, it is essential to distinguish it from the inverted hammer, a bullish reversal pattern.
4. The resulting candlestick would have a small body near the bottom of the day’s range with a long upper shadow, forming a shooting star stock pattern.
5. A trader following the classic pattern might have considered opening a short position after several days of price increases.
6. The next candle should close below the body of the Shooting Star, confirming the trend reversal.

For a Shooting Star to be considered valid, it must appear after a series of bullish candlesticks. This context is essential for confirming the pattern’s predictive value regarding a potential reversal. At the start of the period, buyers push the price significantly higher, demonstrating continued buying pressure.

The Difference Between the Shooting Star and the Inverted Hammer

On July 15, 2024, the price was moving upward throughout the day. However, after surpassing the previous day’s high, the situation shifted. There was a sharp spike in buys (1), but the candle closed shooting star candlestick pattern near its lows. It seems that buyers gave up at the breakout of the previous high, which led to the formation of a Shooting Star pattern. To lock in profits and reduce risks (trailing stop), you might consider partially exiting the position at intermediate support levels. On the one hand, those trading breakouts of the previous high went long.

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The Shooting Star pattern is also a mirrored version of the Hanging Man candlestick pattern. This perspective is also supported by other candlestick pattern researchers. ✔ Enables you to enter a short position relatively close to the market’s peak. On May 14, buyers became more active, likely driven by bullish news.

If the price drops and aligns with a 38.2% or 61.8% Fibonacci level, it can strengthen the case for entering a short position, as these levels often act as natural areas of price correction. The aggressive approach is designed for traders who are comfortable with higher risk in exchange for potentially greater rewards. The Shooting Star has a long upper shadow, suggesting that buyers tried to push prices up but failed. This article explains how to identify the shooting star pattern and how to trade it effectively. 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.

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. Depending on the strength of the trend, different levels are more likely to work better with the Shooting Star pattern. Here you can learn more about the different Fibonacci retracement levels. Usually, it appears after a price move to the upside and shows rejection from higher prices. The charts illustrate a downtrend (1) that lasted throughout the first 1.5 months of 2024. After bouncing back from the day’s low (1), the price encountered a block of sell limit orders near the previous local highs (highlighted in red).

The Shooting Star is a reversal pattern that signals a potential shift from a bullish trend to a bearish one. The candle’s shape resembles a falling star — with a long upper shadow and a small body near the bottom of the candle. The Shooting Star pattern in candlestick analysis is a candle with a small body and a long upper shadow. Traditionally, a well-formed Shooting Star appears after a strong uptrend. The pattern should be seen as a signal that the trend may be reversing from bullish to bearish. It indicates a weakening of buying pressure and a rise in selling activity.

It’s at this point that a shooting star candlestick is formed, confirming bearish pressure to be present at the pivot highs. From here, you can already take a short trade, with a stop loss placed above the wick high. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate.

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Like the shooting star, the hanging man candlestick pattern appears at the top of a bearish trend. The key difference is how the candlestick forms; while the shooting star has a long upper tail, the hanging man has a long lower tail. Both patterns are indications of a possible bearish market reversal, which hints at lower prices in the upcoming movements. If a shooting star candle closes in red instead of green, it signifies stronger bearish pressure from sellers at the price zone.

1. Recognizing this pattern and interpreting its implications correctly can be a valuable skill for traders.
2. In fact, there are other candlestick patterns that have the exact same shape, like the Inverted Hammer candlestick pattern.
3. You will find answers to these and other questions in this article.
4. But remember this is a calculated risk and not a mere speculative risk.
5. The shooting star pattern consists of two candlesticks with a small gap between them.
6. The effectiveness of a Shooting Star pattern can also be influenced by the broader market context.

The first shooting star pattern was formed, then the price bounced off the lower border of the ascending channel with an impulse green candle. This approach allows traders to capitalize on quick market moves and potentially maximize profits from short-term price declines. However, it requires a higher tolerance for risk and the ability to react swiftly to market changes.

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High volume indicates that sellers stepped in with force, overpowering the buying pressure, which increases the likelihood of a true reversal. Traders often look for the pattern followed by declining prices or a confirmation candlestick, such as a bearish engulfing or a red candle with increasing volume. The more reliable shooting stars occur at key resistance levels or after a prolonged, steep uptrend. The price target for a trade initiated by the shooting star pattern should ideally match the size of the pattern itself. This approach helps set realistic profit-taking levels based on the pattern’s structure. Additionally, there should be little to no shadow below the real body of the candlestick.

The chart below shows a hammer’s formation where both the risk taker and the risk-averse would have set up a profitable trade. To qualify a candle as a paper umbrella, the lower shadow’s length should be at least twice the length of the real body. This means that buyers attempted to push the price up, but sellers came in and overpowered them. This is a definite bearish sign since there are no more buyers left because they’ve all been overpowered. With the close near the low, it should not take muchfor price to breakout downward (a close below the bottom of the candlestick) and yet it does so only 59% of the time.