The majority of traders employ standard charting techniques such as Japanese candlesticks, such as the shooting star. Candlestick patterns provide a wealth of information about how market prices may behave. These patterns may serve as indicators of your trade's entry and exit positions. Among them is the shooting star candlestick design.
A shooting star candle is a bearish candlestick with a large upper shadow, a short or non-existent lower shadow, and a little actual body at the day's low. It occurs following an upward trend. On the other side, a shooting star is a candlestick that forms when a security opens, makes a strong move, and then closes near the open again.
The Shooting Star candlestick pattern is a bearish reversal candlestick pattern that frequently happens near the top of uptrends. When the open, low, and close are all approximately the same price, the Shooting formation occurs. Additionally, a lengthy top shadow is commonly defined as being at least twice as long as the natural body. Our candlesticks basics guide contains information on the natural body.' A bearish Shooting Star candlestick is generated when the low and close are the same.
Traders must exercise caution to avoid conflating the shooting star pattern with the inverted hammer candlestick pattern. Both have a longer upper wick and a relatively tiny body. However, the inverted hammer implies a bullish rather than a bearish reversal. Additionally, the inverted hammer pattern is frequently observed at the bottom of a decline.
Talking Points
A shooting star pattern is a bearish candlestick pattern that occurs when the security price increases, rapidly increase, and returns to the open price.
A shooting star candlestick pattern is bearish in nature, with a large upper shadow and no lower shadow.
A shooting star is distinct from an inverted hammer.
One should not make trading decisions solely based on a candle pattern, such as a shooting star.
How Could We Identify the Shooting Star Candlestick Pattern?
A candlestick formation must occur during a price gain to qualify as a shooting star. Additionally, the distance between the day's highest price and the starting price must be double the shooting star's body size. Below the natural body, there should be little to no shadow.
Traders look to see if the difference between the day's highest and lowest prices is twice the shooting star's body length. Additionally, the difference between the closing price and the day's lowest price is negligible or non-existent.
When the low and close are equal, a bearish shooting star candlestick appears, which is considered a more robust pattern because the bears were able to reject the bulls and push prices even lower by closing below the opening price.
This candlestick shape is less bearish but bearish when the open and low are approximately equal. The bears were able to keep the bulls at bay, but they were unable to bring the price back to the open.
The long top shadow of this pattern indicates that the market conducted a test to determine the location of resistance and supply. When the market encountered resistance (the day's highs), bears began to lower prices, bringing the day close to the starting price. Thus, the bears rejected the bullish upward surge.
Shooting Star Candlestick Example
In this case, the stock is gaining as part of a larger upswing. Just prior to the formation of a shooting star, the upswing accelerates. The shooting star indicates that the price opened higher (upper shadow) and closed close to the open. The following day closed lower, confirming a possible downward price movement. The shooting star's peak was not exceeded, and the price continued in a downward trend for the next month. Once the confirmation candle was in place, the trader could liquidate whatever long positions.
What Does the Shooting Star Tell Traders?
Shooting stars suggest the possibility of a price top and subsequent reversal. The shooting star candlestick is most effective when it forms following three or more consecutive rising candles with higher highs. It can also happen during broad market appreciation, even if a few recent candles were bearish.
A shooting star appears as a result of the advance and then climbs vigorously throughout the day. This demonstrates the same buying pressure as witnessed in previous periods. However, as the day unfolds, the sellers intervene and bring the price down to near the open, wiping out the day's gains. This indicates that buyers relinquished authority before the day's end, and sellers may be assuming control.
The extended upper shadow symbolizes customers purchased during the day but is now in red as the price has returned to the open.
The confirmation of the shooting star candle is the subsequent candle. If the next candle's high and close are both below the shooting star's high, then the trade is a success. In an ideal world, the candle after the shooting star gaps lower or opens around the prior close and then falls on solid volume. A down day following a shooting star confirms the price reversal and signals that the price may continue to plummet. Traders may be interested in selling or short selling.
Suppose the price increases following a shooting star, the shooting star's price range may still operate as resistance. For instance, the price could concentrate near the shooting star. If the price eventually rises, the uptrend will remain intact, and traders should favor long bets over short positions.
Psychology of the Pattern
The shooting star candlestick pattern is often regarded as one of the most consistent candlestick patterns. This is the candle's distinctive structure, which combines a small body with a tall upper candlewick.
The psychology of the transaction is quite intricate.
First, purchasers are rejoicing in their gains as the stock soars to a new high. As this euphoric period wears off, short traders begin selling the stock in response to a barrage of buy orders.
At this time, the latecomers become fearful and begin to sell out. This frenzied buying and selling resulted in a fast reversal of the price movement, resulting in a small candlestick body on the chart.
Notably, the shooting star candlestick pattern is significantly more consistent when it forms following three consecutive bullish candles.
This results in exponential bullish pressure being applied to the chart. That is fatigue.
The shooting star candle's upper candlewick is likely to be considerably larger in such instances. This indicates that the price is on the verge of reversing with even greater vigor.
How to Trade the Shooting Star Candlestick Pattern Step by Step?
If you want to trade when you observe the shooting star candlestick pattern, there are a few procedures you need to take. Bear in mind that the shooting star may signify a downward trend - in other words, market prices may fall. If you wish to profit from declining prices, you can do it by using various derivatives.
The shooting star candlestick strategy is a straightforward yet profitable way to trade the financial markets. Across many time zones, you can trade stocks, FX, currencies, commodities, futures, and even cryptocurrencies.
1. Trade Entry
Before engaging in a shooting star trade, individuals should verify the pattern.
Here are a few success criteria:
Determine the existence of an active bullish trend.
Determine a candle with a tiny body and a large higher wick.
Wait for a bearish candle to break the shooting star body's bottom point.
Ascertain a high volume, indicating a plentiful supply.
This verifies the shooting star's legitimacy on the chart.
If individuals can detect the presence of these signals, they should short the security. After all, they are anticipating a bearish price move shortly.
2. Prevent Loss
Traders should always employ a stop-loss order when trading the shooting star candle pattern. After all, nothing is guaranteed in stock trading, and trading the shooting star pattern may result in false signals.
As a result, position the shooting star candle pattern over the pattern's upper wick.
3. Profiteering
The shooting star's pricing target is equal to the pattern's size (the length of the candle).
Similarly, we seek a price move three times the length of the shooting star, including the wick.
Advantages of Shooting Star Candlestick Pattern
Due to its simplicity, a shooting star pattern is an excellent tool for new/beginner technical traders. Identifying a possible shooting star candle is simple if traders adhere to the pattern description.
Occasionally, the candle design will be flawed on its own. However, if the pattern appears close to a resistance level or trend line, the shooting star can provide additional confirmation of the new bearish bias. This is because a single candle is insignificant in terms of the overall trend or market movement.
It is critical to consider risk management when trading this candlestick pattern. This provides the trader with a safety net in a market decline. Additional advantages include the following:
It is pretty reliable at identifying bearish reversals - mainly when they occur around a resistance level.
The Shooting Star Candlestick Pattern's Limitations
One candle is insignificant in the context of a significant rise. Prices are constantly fluctuating, and sellers seizing power for a portion of one period—as in a shooting star—may be insignificant.
This is why verification is necessary. Despite the fact that there is no way of knowing how much the price will fall after verification of the shooting star, selling must occur. The price may continue its upward path with the longer-term uptrend following a small decline.
When trading with candlesticks, use stop losses to limit your risk if they do not work out. Additionally, explore combining candlesticks with other types of analysis. If a candlestick pattern occurs near a level that has been deemed significant by other forms of technical analysis, it may gain additional significance.
Inverted Hammer vs. Shooting Star
The inverted hammer and the shooting star appear to be identical. Both feature a long top shadow and a small genuine body towards the candle's base, with little or no lower shadow. The distinction is contextual. A shooting star occurs following a price increase and indicates a possible reversal to the downside. At the same time, the inverted hammer pattern develops following a price decrease and signals a possible upward trend reversal.
The shooting star pattern is frequently misinterpreted as a hanging figure, and both are typically reversal patterns that arise at the peak of a significant rally.
As the name implies, the hanging man pattern occurs when a small body is paired with a lengthy tail. Its shape is similar to a hanged man, and as illustrated below, it is distinguished by a small body and a long bottom shadow.
On the other hand, the shooting star pattern is the opposite, with a small body and a long upper shadow.
Shooting Star Vs. Dark-Cloud Cover
Contrary to the piercing pattern, the dark-cloud cover pattern occurs at the end of an uptrend. It is a twin candlestick pattern in which the first candlestick is pale in color and has a sizeable genuine body. The second candlestick must be black, open higher than the first candlestick's height, and close well inside the first candlestick's actual body. The greater the penetration depth of the second candlestick into the first, the more trustworthy the pattern becomes.
Shooting Star Vs. Harami Pattern
'Harami' is an ancient Japanese term that means pregnant and perfectly depicts this design. The harami pattern is composed of two candlesticks, the first of which serves as the mother, entirely enclosing the second, smaller candlestick. A reversal candlestick pattern can occur during both up and downtrends. When the second candlestick is a Doji, the pattern is referred to as a harami cross. This pattern is more significant than the standard harami pattern, as the doji's lack of an actual body signifies extreme hesitancy and doubt.
FAQs
When is it OK to use a shooting star candlestick?
The shooting star candlestick pattern is an advantageous technical analysis technique for identifying bearish divergence in the market. The shooting star indicator may be beneficial for traders who have taken a short position in a market and are searching for an exit or for traders looking for an entrance opportunity to take a long position.
In forex, what is a shooting star candlestick?
The shooting star pattern appears on forex charts just like any other chart. At similar price points, the candlestick for your chosen forex currency pair would open, shut, and find a low. In this scenario, the shooting star might indicate that the closer the price points are, the tighter the shooting star, and the more likely it is that the currency pair on which you are speculating will decline.
What message is conveyed by an inverted shooting star candlestick?
The inverted shooting star is a bullish research technique that looks for market divergence between a previously bearish trend and a bullish rally. Inverted shooting star patterns are often referred to as inverted hammer candlestick patterns. Like the shooting star, it has a long upper shadow and tight open, close, and low prices. The distinction is that the inverted hammer will have a bear run preceding the candle in question.
The Inverted Hammer formation, which happens during bottoms, is the bullish equivalent of the Shooting Star pattern. The Gravestone Doji is another candlestick pattern similar in appearance and meaning to the Shooting Star pattern.
Conclusion
When the market price is considerably pushed up but subsequently rejected and closed near the open price, a shooting star candlestick pattern emerges. This could indicate a bearish reversal, implying that an uptrend may not continue.
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