Shooting star trading strategy
This means that the price won’t move any further from the ideal entry price. The colour of the shooting star candlestick does not matter, either red or green. The only thing that matters is the candlestick’s location, prior trend, and structure. The shooting star candlestick consists of a long upper shadow and a small body near the bottom. The shadow should be greater than 70% of the total body of the candlestick. To identify a perfect shooting star candlestick pattern, I will explain this candlestick in three stages.
- The entry signal from this pattern set up would occur immediately following the close of the shooting star candle.
- 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.
- With these conditions met, we should go back to the shooting star formation for further analysis.
- Also, the long wick at the top of the candle shows that the market is rejecting the higher price levels, thus the candle’s body forms near the bottom.
- Like any other candlestick pattern, the shooting star pattern cannot be used in isolation to make a trading decision.
- One of the reasons for this is the unique structure – a small body with a high upper candlewick.
On the daily forex charts, it is as a sign, of a potential short term bearish correction. Traders holding short positions may have been forced to exit and buy back their positions. Likewise a price reaching new highs could initiate an abundance of buy side stop losses which would add to the ifc markets review volume of buyers. A shooting star will stand out in the chart because the shadow will be long in relation to the shadows and bodies of other nearby candlesticks. While the shooting star indicates that the price will likely move lowers, there is usually no guarantee of how far it will drop.
Using The Shooting Star To Spot Sell Signals
The high of the long shadow acts as a resistance level, above which bulls struggle to push prices higher as bears enter the market. Consequently, prices start to edge lower as bears appear to be winning the battle. At the end of the session, the price retreats from the highs of the session and closes near the opening price. The shooting star candlestick is considered one of the most reliable candlestick patterns. One of the reasons for this is the unique structure – a small body with a high upper candlewick. The shooting star is a single bearish candlestick pattern that is common in technical analysis.
Despite the small correction on the way down, the shooting star reaches the target of three times the size of the candlestick. The shooting star candle is a reversal pattern of an upwards price move. Secondly, the open and close of the candle should blackbull markets review occur near the bottom one third of the price range. And also, the body of the shooting star formation should be relatively small. If we analyze our shooting star formation here, we can see that all of these important guidelines have been met.
What is a Shooting Star Pattern?
I’m wary because I’ve been told that unethical market-makers can manipulate them. The last part of the uptrend, prior to the shooting star candle, needs to be more volatile. For this demonstration, we’re going to look at the bearish shooting star or the inverted hammer.
The shooting star candlestick pattern can help you how to spot a top in the market and how to trade it properly. The shooting star is a bearish reversal candlestick that appears after a significant price advance. Therefore, it appears at the top of an uptrend suggesting that the price has peaked and the upward momentum is waning.
The pattern forms at an area of strong resistance indicate that the price is likely to edge lower from the bullish setup. For this reason, place the shooting star candle pattern above the upper wick of the pattern. But before we go into the trading strategy, let’s examine first how a shooting star pattern looks like for us to be able to trade it effectively.
Higher time-frame trading:
There are several candlestick patterns, but you shouldn’t confuse yourself to finding the best one. Short Line Candles – also known as ‘short candles’ – are candles on a candlestick chart that have a short real body. If the price rises after a shooting star, the formation may have been a false activtrades review signal or the candle is marking a potential resistance area around the price range of the candle. To be classed as a shooting star it should reach or be close to a recent high in the trend that’s forming. When the same pattern forms at a trend bottom it is called an inverted hammer.
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. A down day after a shooting star helps confirm the price reversal and indicates the price could continue to fall. Following the advance, a shooting star opens and then rises strongly during the day. This shows the same buying pressure seen over the last several periods.
The difference is that the inverted hammer will have a bear run prior to the candle you’re looking for. The shooting star candlestick pattern is a bearish candlestick pattern, therefore it indicates us to sell our position or to open a short position. It must appear after an uptrend and typically marks the end of such uptrend.
We aims to be a place where every forex traders can gain resources about trading. In such an instance, the shooting star formation was correct in its prediction. The price takes a sharp dip to the downside over the time frame of the next three candlesticks that form before resuming the overall trend to the upside. A trader who sold short upon seeing the shooting star pattern could’ve quickly pocketed a profit on a short-term, intraday trade.
Also, the slope of the 100 EMA also indicates the direction of the trend. An upward sloping 100 EMA indicates a bullish mid-term trend, while a downward sloping 100 EMA indicates a bearish mid-term trend. Simply hide your protective SL above the high of the shooting star pattern. You can add a buffer of a few pips if you wish to protect against possible false breakouts.
How to Practice This Strategy
Firstly, we want to confirm that an uptrend exists prior to the shooting star formation. This is an important requirement because we know that a valid shooting star pattern should occur in a rising market. This would mean that we would miss out on the opportunity to trade the shooting star set up in this case. It is important to acknowledge that one candle is often not meaningful enough to estimate the chances of a potential reversal.
That is to say immediately following the shooting star formation, we will place a market order to sell. The stop loss placement would be just above the high of the shooting star candle itself. ForexMT4Indicators.com are a compilation of forex strategies, systems, mt4 indicators, mt5 indicators, technical analysis and fundamental analysis in forex trading. You can also find systems for scalping such as trends, reversals, price actions. Trading on a lower timeframe like 1 minute to long term trading are also imparted here.
We have a small candle body and a big upper candlewick, which confirms the shape of the pattern. Now that you have a good understanding of what the shooting star and a hammer candlestick pattern are, let’s take a look at how to use them to buy/sell stocks. It is important to mention that the shooting star candlestick pattern is even more reliable when it develops after three consecutive bullish candles. First and foremost, we will need to spot a potential shooting star formation on the price chart.
Additionally, there are some characteristics of a shooting star formation that, if they occur, make the signal of a possible market reversal to the downside stronger. The pattern is also considered stronger if there is no lower tail or shadow whatsoever. 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. A shooting star is a bearish reversal chart pattern that is characterized by a long upper wick, little or nonexistent lower wick and a small body.
However, this also looks like an inverted hammer candle pattern. The bulls, however, could not maintain the price move higher, as sellers came in and overwhelm the buyers with their supply-side orders. This leads to a sharp move lower as the sellers are the ones that are truly in control of the market during this time. It’s better to put stop loss just above the long upper shadow of the shooting star to minimize possible risks. I am unable to find an actual website where I can choose a company and see its candlestick charts.
Now, it’s time to highlight how to find the right entry point for bearish shooting star candlestick. The shooting star candle strategy is a very simple but very effective methodology to trade the financial markets. You can trade stocks, Forex, currencies, commodities, futures and even cryptocurrencies across various time frames. To properly understand the bulls and bears battle behind the shooting star pattern, let’s examine this candlestick pattern in more detail.
The Difference Between the Shooting Star and the Inverted Hammer
Notice how the price moves higher in a nice stairstep fashion with successively higher highs and higher lows during its progression. With the uptrend confirmed, we can now draw a trendline connecting the swing lows within the upward moving price action. You can see the upward sloping blue line that we have drawn as our trendline.