Shooting Star Candlestick Pattern How to Trade & Examples

The candle is most effective when it comes up after a series of three or more consecutive rising candles with higher highs. It may also form during a period of overall rising prices, even if a few recent candles were bearish. According to Steve Nison, candlestick charting first appeared sometime after 1850.

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. We have discussed a number shooting star candlestick pattern of candlestick patterns on the Tradingsim blog. If you haven’t checked out our other resources be sure to do so, you’ll find a really nice candlestick pattern cheat sheet…

Red Shooting Star Example

They are very useful in finding reversals and continuation patterns on charts. While we discuss them in detail in other posts, in this post we… Mr. Pines has traded on the NYSE, CBOE and Pacific Stock Exchange. 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.

• The upper wick must take up at least half of the length of the candlestick for it to be considered a shooting star.
• We also distinguish between the shooting star and inverted hammer candlestick pattern, sometimes referred to as an inverted shooting star.
• This panic long selling and short selling leads to a sharp reversal in the price action, thus generating a small candlestick body on the chart.
• The emergence of a strong bearish candlestick that opens and closes below the shooting star candle affirms bears are in control of the market.
• Similar to other price action trading strategies, the shooting star is one of the trading tools that can’t be dismissed in the trading world.
• We see that this shooting star trade produced profits, but these unsuspecting traders are on the wrong side of history.

A shooting star candlestick pattern is a bearish formation in trading charts that typically occurs at the end of a bullish trend and signals a trend reversal. It is a popular reversal candlestick pattern that occurs frequently in technical analysis and is simple and easy to identify. The Inverted Hammer looks exactly like a Shooting Star, but forms after a decline or downtrend. Inverted Hammers represent a potential trend reversal or support levels. After a decline, the long upper shadow indicates buying pressure during the session. However, the bulls were not able to sustain this buying pressure and prices closed well off of their highs to create the long upper shadow.

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Traders can place short positions at this level with a stop loss order a few pips above the shooting star highs. Shooting star and hanging man both are bearish reversal candlestick patterns. Remember that the shooting star candlestick should never be viewed in isolation.

Most traders usually wait for a confirmation of the pattern before they enter a trade. For example, they can look at the second and third candlesticks that form after the shooting star pattern. The hangman has a long lower wick and the shooting star has a long upper wick. In addition, a hanging man serves as a stronger reversal signal than a shooting star. There are several ways to trade a shooting star candlestick pattern.

How to Spot & Trade with the Shooting Star Candlestick Pattern

Switch the View to “Weekly” to see symbols where the pattern will appear on a Weekly chart.

Whenever you are certain that a trend reversal is expected to happen, you need to enter a selling position with a stop loss above the shooting star’s highest level. For a profit price target, it is best to use Fibonacci retracement levels and set your take profit order at one of the Fibonacci levels. While the first two patterns appear at the end of a downtrend, the shooting star occurs at the end of a bullish trend and is, in essence, a top reversal pattern. A shooting star candlestick is a unique charting pattern that comes at the end of an uptrend and indicates a potential trend top area followed by a trend reversal. This bearish reversal candlestick has a long upper shadow, little (or no) lower shadow, and a small body. The upper wick must take up at least half of the length of the candlestick for it to be considered a shooting star.

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Because of this failure, bullish confirmation is required before action. An Inverted Hammer followed by a gap up or long white candlestick with heavy volume could act as bullish confirmation. The reversal implications of a dragonfly doji depend on previous price action and future confirmation. The long lower shadow provides evidence of buying pressure, but the low indicates that plenty of sellers still loom. After a long downtrend, long black candlestick, or at support, a dragonfly doji could signal a potential bullish reversal or bottom. After a long uptrend, long white candlestick or at resistance, the long lower shadow could foreshadow a potential bearish reversal or top.

The price action moves higher again in the session, fails to create a new high, and reverses to close at the low of the session. Some traders prefer to wait and see whether the next candle is a bearish one, which will confirm that the reversal is taking place. Again similar to a hammer, the shadow, or wick, should be twice as long as the body itself. Fortunately, the next candle is bearish and breaks the low of our shooting star candle on the chart.

The transition of the MACD into the negative zone and the impulsive breakout of the support level served as additional confirmation. However, the formation of a shooting star pattern on the rise may indicate an imminent short-term correction. In contrast, the inverted hammer is a bullish reversal candlestick https://g-markets.net/ pattern that occurs at the bottom of a downtrend. The inserted hammer indicates that the price has bottomed out and is likely to move higher as part of an emerging bullish momentum. The emergence of a more bearish candle after the shooting star candle asserts a change in momentum from bullish to bearish.

However, traders should be aware of each market’s unique characteristics and adjust their strategies accordingly. Yes, there are limitations to using the Shooting Star candlestick. For example, the pattern may be less effective in markets with low trading volumes or during periods of high volatility. Traders should also be aware of false signals that may occur, such as when a Shooting Star pattern is followed by a continuation of the uptrend. It can be a reliable signal at the top, supported by other reversal patterns such as hanging candle, dark cloud cover and bearish engulfing. If you learn how to find this pattern on the chart, you will be able to correctly identify resistance levels and profitable entry points into the market.

The difference becomes that the market hasn’t gone up as much, as if we had required the close to be above the upper Bollinger band. In theory, this means that we’ll get more false signals, but the increased number of trades could still mean that we make more money. 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. This is why confirmation is required, one can confirm by the next day candle or other technical analysis indicators.