How to Trade the Shooting Star Candle

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valid shooting star

This is an example of a shooting star forming within the context of a larger bearish price move. And that is to say that we should expect downward price pressure following a confirmed shooting star pattern. A shooting star is a single-candle bearish pattern that generates a signal of an impending reversal.

bearish candle

It is a popular reversal candlestick pattern that occurs frequently in technical analysis and is simple and easy to identify. While shooting star patterns are very easy to identify, it is important to realize that candlestick patterns shouldn’t be the only reason you enter a trade. The shooting star pattern is a reversal pattern that signals a potential trend reversal from bullish to bearish. It occurs when the market is in an uptrend, and the bulls are pushing the price higher. However, at some point, the bears enter the market and push the price back down, resulting in a long upper shadow. The small real body indicates that the bears were able to push the price back down to or below the opening price, indicating that they have taken control of the market.

Single Candlestick Patterns

After a brief decline, the price could keep advancing in alignment with the longer-term uptrend. Traders typically wait to see what the next candle does following a shooting star. 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. A trader could simply enter on the open of the next candle or, if the trader was more conservative and wanted to capture a better risk-to-reward ratio, trade the retest of the wick . For aggressive traders, the Shooting Star pattern illustrated below could potentially be used as a sell signal. In fact, there was so much resistance and subsequent selling pressure, that prices were able to close the day significantly lower than the open, a very bearish sign.

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This can be seen by the overlapping price action leading up to the shooting star candle. 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. Japanese candlesticks are a popular charting technique used by many traders, and the shooting star candle is no exception.

Shooting Star vs. Inverted Hammer

It is used in technical analysis as an indication of a possible impending reversal in price action to the downside. While the shooting star indicates that the price will likely move lowers, there is usually no guarantee of how far it will drop. Given that price is expected to bounce back and start moving up, it is essential to use a stop loss order while trying to trade reversals with this pattern. Short Line Candles – also known as ‘short candles’ – are candles on a candlestick chart that have a short real body.

For this reason, it is important to always cross-check the signal that a shooting star generates with other indicators, or other candlestick patterns. For instance, in the vicinity of a shooting star there may be other formations that signal the reversal or indecision. Like any other candlestick pattern, the shooting star pattern cannot be used in isolation to make a trading decision.

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However, the low success rate indicates it cannot be relied on its own to provide accurate reversal signals. A shooting star is a bearish candlestick pattern that forms when a security’s price opens above its closing price and then falls sharply during the trading session. The candlestick has a small real body and a long upper shadow that is at least twice the length of the real body.

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Afterward, price tanks, and while it tries to rise in the next few days, it struggles to rise above the shooting star highs affirming the bearish momentum. The setup allowed traders to enter short positions as soon as the bearish candlestick occurred after the shooting star pattern. 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.

Traders consider it to be a bearish reversal pattern that takes place at the end of the uptrend, again the same as the shooting star. The daily timeframe chart offers the best combination of reliability and frequency as it relates to the shooting star candlestick formation. In the illustration above you can see what the shooting star candlestick appears like. 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.

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The Shooting forex shooting star is created when the open, low, and close are roughly the same price. Get ready to receive three amazing chart pattern videos that are over 30 minutes long straight into your inbox. If there is a gap between the body of the previous period and this period, the likelihood of a strong reversal is high.

While the shooting star pattern might indicate a potential sell-off, it can be invalidated if the candlestick pattern is followed by a continuation of the uptrend. However, this is less frequently the case as that uptrend is followed by a price correction towards the downside after such a candlestick pattern has been formed. 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.

What is the Shooting Star Candlestick Pattern?

It can be recognized from a long upper shadow and tight open, close, and low prices — just like the shooting star. The difference is that the inverted hammer will have a bear run prior to the candle you’re looking for. Our entry calls for entering a short position immediately following the close of the confirmed shooting star pattern. From here, we would immediately place a stop loss order just above the high of the shooting star formation. Once we have done that, we will need to monitor the trade carefully and watch for a touch of the lower line of the bearish channel. You can see when the exit signal was triggered on this trade by referring to the magnified area at the lower right of the price chart.

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When the shooting star occurs, it first rises, implying the buying pressure experienced during the previous session is still in play. However, as the session or day progresses, short sellers enter the fray piling the pressure on the bulls. The candle that forms after the shooting star is what confirms the shooting star candle.

This is especially the case with https://g-markets.net/-candle patterns since it is tough to predict future trends based on the shape of a single candle. Also, it is useful to check other candles near the shooting star candle to assess additional confirmation of a reversal. In an example above, we see how the EUR/USD is in a clear uptrend as the price action moves higher in a consolidated fashion.

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However, it may also occur during periods of rising prices even if the recent candles were bearish. The appearance of the shooting star candlestick signifies price has topped and is likely to correct and start moving lower. A spinning top is a candlestick pattern with a short real body that’s vertically centered between long upper and lower shadows.

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Both candlesticks have petite little bodies , long upper shadows, and small or absent lower shadows. Therefore, the shooting star’s key strength is its ability to generate a reversal signal. Of course, it may not always be right, but it is considered to be effective and reliable. However, please note that this is still one signal generated by one of hundreds of technical indicators. A shooting star pattern is found at the top of an uptrend, when the trend is losing its momentum.

bearish shooting star

There are dozens of different candlestick patterns that are available to market traders. Some of these patterns come in the form of a single candle, while others are seen as double and triple candle formations. Overall, traders should approach the Australian dollar market with caution, as it is highly sensitive to global trends and can be prone to fluctuations. The key resistance and support levels should be monitored closely, and traders should be prepared to adjust their trading strategies based on changing market conditions.

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