Some of these patterns come in the form of a single candle, while others are seen as double and triple candle formations. In our discussion here, we will focus on a specific single candle pattern referred to as the shooting star. It’s a powerful pattern that will often call market tops, and the end of rallies within an overall downtrend.
- During the previous candles, the bulls have been in control, pushing the prices higher and into an established uptrend.
- Our advice is to consult other indicators, like Fibonacci, trend lines, or moving averages, and decide whether to exit a positive trade or not.
- The following day closed lower, helping to confirm a potential price move lower.
- You could just as well use a slightly shorter or longer variation as well.
- Learn how this versatile pattern can signal both reversals and continuations, shaping your trading strategies.
- Anytime that you find this formation on the daily chart and wherein it occurs in context of an uptrend, you will want to pay close attention to the price action of the next few bars following it.
The body closes near the lows, the lower shadow is small or totally lacks. The candlestick may be of any colour, with or without a gap from the previous candlestick. This candlestick looks like a shooting star (a meteorite burning in the atmosphere) that leaves a long trail.
This bearish reversal candle looks like the Inverted Hammer except that it is bearish. In such a case, it will also generate a trend reversal signal after the formation of a candlestick during the downtrend. But the name of the shooting star candlestick will change to inverted hammer candlestick. The sense of a candlestick pattern can be changed just by the change of location on the candlestick chart.
The first scenario is when the market is exhibiting a clear uptrend, and the second scenario is when the market is correcting to the upside within a larger downtrend. There are no exact rules as it relates to the labeling of a shooting star pattern, however, as a general guideline, we want to see a long upper wick, a relatively small body, and a short lower wick. A shooting star is a single-candle bearish pattern that generates a signal of an impending reversal. Similar to a hammer pattern, the shooting star has a long shadow that shoots higher, while the open, low, and close are near the bottom of the candle. Therefore, the shooting star’s key strength is its ability to generate a reversal signal.
Forex, Gold & Silver:
Forex traders observing the shooting star candlestick will often look for confirmation signals to support any trading decision based on it. The shooting star candlestick pattern can benefit various types of forex traders. Trend reversal traders can capitalize on its bearish signal to identify potential shifts from uptrends to downtrends. Swing traders can also use the shooting star pattern to locate potential turning points and enter short positions ahead of resistance levels and when upside momentum wanes. Many forex traders appreciate the value of the shooting star candlestick pattern since it provides useful insights into potential uptrend reversals and bearish shifts in market sentiment.
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. Now all there is left to do is to wait for the price action to show its hand. That is to say that if the price breaks below this uptrend line within five bars following the shooting star pattern, then we will have a signal for a short trade. Some traders prefer to wait and see whether the next candle is a bearish one, which will confirm that the reversal is taking place. 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.
The long upper shadow demonstrates that the market reached a high level during the session but couldn’t maintain it. The short or nonexistent lower shadow signifies that there was little to no buying pressure during the session. A shooting star forex pattern is therefore a bearish reversal candlestick that generally appears after a rise in price and signals a potential change in trend direction. When a shooting star candlestick forms at the resistance zone, then open a sell order instantly. Place stop loss level a few pips above the high of shooting star candlestick for high-risk entry with a large risk-reward ratio. However, if you want to go with a conservative trade setup, always place a stop loss above the resistance zone instead of placing a stop loss just above the high.
Tools & Features
They both have long upper shadows and small real bodies near the low of the candle, with little or no lower shadow. A shooting star occurs after a price advance and marks a potential turning point lower. An inverted hammer occurs after a price decline and marks a potential turning point higher.
Shooting Star: signal to sell
After this sluggish price action higher, we can clearly see that a shooting formation prints on the price chart. Notice that it meets all of the criteria for correctly labeling it as a shooting star formation. Secondly, the upper wick is very prominent, and the open and close are both at the lower end of the range.
Indicator:
Forex trading is an exciting and dynamic field that is filled with a wide variety of trading strategies and tools. One of the most popular and widely used tools in forex trading is the candlestick chart. Candlesticks are a powerful way to analyze price movements and identify potential trading opportunities. One of the most important candlestick patterns in forex trading is the shooting star. In this article, we will explore what a forex shooting star is and how it can be used to make profitable trading decisions.
Shooting Star Trading Example – Counter Trend Setup
This means the trader is entering a short trade at a higher price and with a tighter stop loss reducing risk. Prices frequently reverse course and retrace an upward portion of the long wick. Recognizing this, a trader might postpone entry until the middle of the wick as opposed to entering right after the shooting star candle forms. This indicates that the trader is starting a short position at a higher price and with a more restrictive stop loss, which lowers risk. 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.
What Is The Shooting Star Candlestick Pattern & How To Trade With It
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If price breaks out below the low of the shooting Star formation, it will often lead to further downside momentum. The next candle is a long bearish candle that confirms that a reversal is taking place. 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 forex shooting star greatest strength of this pattern, and as it is with a hammer, it gives you a clear level to play against. The pattern is significant only after a lengthy growth of the quotations, when the market is overbought. In an ascending movement, the bulls get stuck in a strong resistance level that gives the bears a chance to accumulate forces and push the price down.