How to trade Shooting Star Candlestick Pattern TradingNinvestment Shooting star candlestick, Shooting star candle, Candlestick patterns

As a “Shooting Star”, it makes sense for the signal to occur high up after the price has gone up sky high. This information has been prepared by IG, a trading name of IG Markets Limited. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it.

The light blue line shown on the price chart is our nine period moving average line that serves as the exit signal. After a sharp drop from the shooting star candle, the price started to print a few consecutive green bars. This upper price momentum continued until one of those bars finally closed above the nine period SMA line. That event served as the exit signal, which would have closed out this trade with a profit. The stop loss on the trade will be set at the high of the price bar that breaks below the trendline.

Technical Indicators

This is a bearish candlestick whose formation occurs in instances where a security opens and advances significantly, but ends up closing the day at almost where it opened. It is characterized by a long upper shadow, a small or no lower shadow, as well as a reduced real body near the day’s low. Remember that the invast reviewstick should never be viewed in isolation.

• A candlestick pattern may take on more significance if it occurs near a level that has been deemed important by other forms of technical analysis.
• From here, we would immediately place a stop loss order just above the high of the shooting star formation.
• For example, waiting a day to see if prices continued falling or other chart indications such as a break of an upward trendline.
• If there is a gap between the body of the previous period and this period, the likelihood of a strong reversal is high.
• Now, the Shooting Star Candlestick Pattern is one variation of bearish price rejection.

Determine significant support and resistance levels with the help of pivot points. Examining the performance statistics confirms that the shooting star acts as a reversal 59% of the time. Thus, although price reverses more often than not, do not depend on that happening. If you are rather aggressive, enter the trade at the opening of the next candlestick. If you are interested in trading using technical analysis, have a look at our reviews of our recommended brokers to learn which tools they offer.

The USD/EUR chart above shows the apparent price in an uptrend after bottoming out from the base. This means that when you add the MACD indicator to a trading chart, you’ll be looking for a crossover around the same price area where the shooting star candlestick pattern occurs. 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. As with any other technical analysis candlestick pattern, you must know how to correctly identify the shooting star pattern in order to use it as part of your forex trading strategy. Looking closely at the number of candles following the shooting star pattern, we can see that the third candle broke below and closed below the upsloping trendline.

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. Unfortunately, some traders do not take that extra step in gauging the market context around a shooting star formation. This can lead to a higher rate of false signals, and lower overall profitability when using the pattern. Those that do take the time to understand the market environment in which the shooting star pattern should be traded, will be better rewarded for their efforts.

Shooting Star Candlestick Pattern Conclusion

Furthermore, the distance between the day/period’s highest price and the opening price must be more than twice the size of the shooting star’s body. Keep in mind that the shooting star candlestick should never be viewed in isolation. Before acting on the formation, confirm the signal using technical indicators. For example, if you think that a shooting star at the top of an uptrend means possible reversal, you can test the bearish bias using Fibonacci retracement. This indicator can pinpoint the degree to which a market will move against its current trend.

Whenever you decide to trade the reversal that was initiated by a shooting star, the stop loss should always be placed above the candle’s high. This is arguably the greatest strength of this pattern, and as it is with a hammer, it gives you a clear level to play against. In both cases, an occurrence of the shooting star at the top of an uptrend only generates a signal of an impending reversal and it shouldn’t be taken as a direct trading signal. Short Line Candles – also known as ‘short candles’ – are candles on a candlestick chart that have a short real body. Said differently, a shooting star is a type of candlestick that forms when a security opens, advances significantly, but then closes the day near the open again. We research technical analysis patterns so you know exactly what works well for your favorite markets.

For example, they can look at the second and third candlesticks that form after the shooting star pattern. A dragonfly doji is a candlestick pattern that signals a possible price reversal. The candle is composed of a long lower shadow and an open, high, and close price that equal each other. If the price rises after a shooting star, the price range of the shooting star may still act as resistance. For example, the price may consolidate in the area of the shooting star. If the price ultimately continues to rise, the uptrend is still intact and traders should favor long positions over selling or shorting.

This shows the same buying pressure seen over the last several periods. As the day progresses, though, the sellers step in and push the price back down to near the open, erasing the gains for the day. This shows that buyers lost control by the close of the day, and the sellers may be taking over. If the price rises after a shooting star, the formation may have been a false signal or the candle is marking a potential resistance area around the price range of the candle.

That’s why it is a pattern in the first place and not just a regular, irrelevant candlestick. Candlestick patterns and formations provide crucial information on price action and the direction in which the market is likely to move. For traders looking to profit from price reversals, the appearance of certain candlesticks provides valuable insights on when to enter and exit the market.

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And that is to say that we should expect downward price pressure following a confirmed shooting star pattern. The shooting star, on the other hand, can give confirmation to the new negative bias if it appears near a resistance level or trend line. This is due to the fact that a single candle does not play a significant role in the broader trend or market movement. This is my proprietary trading formula and it’s powerful when combined with reversal candlestick patterns. When you spot it, you could place a buy-stop above the upper shadow.

Thus, although the buyers were successful in pushing for a new high, they failed to force a close near the session’s high. Their inability is now a chance for the sellers to reverse the price action and erase previous gains. In general, the longer the wick the stronger the reversal, since the long wick signals the inability of the bulls to secure a high close. A shooting star pattern is found at the top of an uptrend, when the trend is losing its momentum. Selling must occur after the shooting star, although even with confirmation there is no guarantee the price will continue to fall, or how far. After a brief decline, the price could keep advancing in alignment with the longer-term uptrend.

In short, a Shooting Star is a bearish reversal candlestick pattern that shows rejection of higher prices. Day traders that I know depend on the shooting star more often than I think they should, but my statistics are based on the daily charts, not intra day ones. I found that the shooting star candle acts as a bearish reversal 59% of the time. First, you need to ensure that the asset’s price is in a bullish trend. Second, as mentioned above, this pattern is characterized by having a small body and a long upper shadow. They both have long upper shadows and small real bodies near the low of the candle, with little or no lower shadow.

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. The bullish version of the Shooting Star formation is the Inverted Hammer formation that occurs at bottoms. Trade up today – join thousands of traders who choose a mobile-first broker. In some situations, the price continues to rise after the appearance of the Shooting Star. Get free access to our live streams and our market analysts will show you exactly how to read the charts.

Shooting Star Candlestick Chart Trading Tutorial and Example

That is to say that the upper wick of this candle is very prominent in comparison to the lower wick. Additionally, the open and close of this formation occurs near the bottom of the range. And finally, the size of the body within the candle should be relatively small. If you examine the shooting star shlomi yoshai formation here, it’s quite evident that all of these characteristics have been met. Once we have found such a market, then we would wait for a shooting star formation to form during one of the pullback legs. We want the shooting star to either touch or penetrate the upper line of the bearish channel.

Advantages of using the Shooting Star candlestick pattern in trading

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The shooting star formation is a unique bearish candlestick pattern that comes at the end of an uptrend and signals an overbought market. It has a very similar structure as the Gravestone Doji candlestick pattern, though the latest has no body, meaning the opening and closing price are the same. Shooting stars candlestick pattern imply a price top and reversal could be approaching. After a period of three or more consecutive rising candles with higher highs, the tradingview screener is most useful. Even if a few recent candles were bearish, it could occur within a period of generally rising prices. This candlestick guide focuses on how to find and interpret the shooting star candlestick pattern.

So now we have protected the position 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. We want to build a simple yet effective strategy for trading the shooting star that will be easy to implement in the market. Firstly, we want to confirm that an uptrend exists prior to the shooting star formation.

Discover the range of markets and learn how they work – with IG Academy’s online course. To start trading today, open a live IG account in just a few minutes or sign up for a demo account. However, it is still important to couple it with fundamental and technical analysis. However, if you use the strategies mentioned above, you will be at a good position to avoid risking too much money.

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. However, even with confirmation, there is no guarantee that the price will continue to fall, or how far it will go. Unlike other patterns, a shooting star candlestick pattern gives no hint or target on how much the price will move. In fact, a shooting star candlestick patterns only indicate the price to decline, but the price could still keep advancing in alignment with the longer-term uptrend. The shooting star reversal candlestick boasts a success rate of about 69% when predicting bearish reversals from an uptrend.