You can see when the exit https://g-markets.net/ was triggered on this trade by referring to the magnified area at the lower right of the price chart. Still, with a quick look at a trading chart, you’ll be able to understand what the shooting star candlestick pattern looks like. As you can see, in the GBP/USD 30-min chart below, the shooting star pattern appears after an uptrend and indicates a price reversal of the current trend. The entry signal from this pattern set up would occur immediately following the close of the shooting star candle. That is to say immediately following the shooting star formation, we will place a market order to sell.
- The shooting star pattern appearing as soon as the RSI moves above the 70 levels and into overbought territories should be a warning sign of potential price reversals.
- Afterward, a shooting star candle appears at the top after the significant price advance.
- There is a long upper tail or upper shadow, a comparatively much shorter lower tail or shadow, and a noticeably short body with the price closing below the candle’s opening price.
- The pattern is also considered stronger if there is no lower tail or shadow whatsoever.
- CSCO’s stock price eventually found resistance at the high of the day.
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However, the pattern sometimes indicates a long-term reversal from an overall uptrend to an overall downtrend. 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. If the price rises after a shooting star, the formation may have been a false signal or the candle is marking a potential resistance area around the price range of the candle. Cory is an expert on stock, forex and futures price action trading strategies. As with the Inverted hammer most traders will see a longer wick as a sign of a greater potential reversal and like to see an increase in volume on the day the Shooting Star forms.
How to Trade the Shooting Star Pattern
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In this case, we will employ the nine period simple moving average as the mechanism for trailing the price action and issuing our buy exit signal. More specifically, when the price crosses above and closes above this nine period simple moving average line, we will exit the position completely. As outlined earlier, a shooting star is a bearish reversal pattern which signals potential change in the price direction. The uptrend is nearing its end as the momentum is weakening, and the sellers are feeling more confident that they can force a reversal in price action. It has a very similar structure as the Gravestone Doji candlestick pattern, though the latest has no body, meaning the opening and closing price are the same. The shooting star candlestick is considered one of the most reliable candlestick patterns.
However, they differ depending on when they occur and the trading signal they imply. The shooting star pattern can occur when trading any security from forex to commodities and even stocks. It is not limited to a particular instrument as it is a function of trader’s sentiments and price action. There are several ways to trade a shooting star candlestick pattern. The chart shows that the price has been consolidating under the resistance for a long time, trying to break it out. However, the bulls weakened with each attempt, and the bears became stronger.
The image illustrates a classical shooting star trading example. Also, you should keep in mind that the long shadow should form outside the range of the previous candlestick. The Relative Strength Index is a vital momentum indicator that indicates levels where the market is overbought or oversold.
How to find a shooting star candlestick pattern?
With a more risky trading strategy, it is possible to open trade even higher, in the zone of formation of a shooting star and a hanging man. When conducting a technical analysis of any asset, it is important to determine support and resistance. I hope this article has provided you with the knowledge you need to easily identify, confirm, and trade the popular shooting star forex pattern. A 15-minute chart of GBP/USD in the forex market is shown below, illustrating an instance of the shooting star formation occurring and correctly presaging a turn to the downside.
Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. In forex, the shooting star pattern shows like in any other chart. The candlestick for your chosen forex currency pair would open, close, and find a low at similar price points.
The Shooting Star Candlestick Pattern & the Hammer Candlestick pattern
We also distinguish between the shooting star and inverted hammer candlestick pattern, sometimes referred to as an inverted shooting star. The uptrend accelerates just prior to the formation of a shooting star. The shooting star shows the price opened and went higher then closed near the open.
The user-friendly and functional LiteFinance online platform with a variety of investment products for trading will help you improve your skills in practice using a free demo account. The information in this site does not contain investment advice or an investment recommendation, or an offer of or solicitation for transaction in any financial instrument. Depending on your comfort level and style of trading, you may choose one entry method over the other or choose some other variation altogether.
It was possible to open the first shooting star forex position when several shooting star patterns appeared with a target at the support level, from which the price bounced up. In this case, set the stop loss above the resistance when opening a short trade and below the support when entering a buy trade. Bulls’ weakening was confirmed by the formation of a shooting star. After two price reversal confirmations, a short trade can be entered with a target at the nearest support level where an inverted hammer has formed.
What is a shooting star candlestick pattern?
A candlestick pattern may take on more significance if it occurs near a level that has been deemed important by other forms of technical analysis. When novice traders start their Forex trading journey, they get bombarded with all kinds of information related to trading, such as chart patterns, indicators, signals, and more. Among them, one of the most common chart patterns that are widely used for spotting price reversals is the Shooting Star pattern, but exactly what is Shooting Star?
Similarly, if the primary trend is down, then the corrective phase would occur as prices are moving higher. In the CSCO chart above, the market began the day testing to find where supply would enter the market. CSCO’s stock price eventually found resistance at the high of the day. Also, there is a long upper shadow, generally defined as at least twice the length of the real body. You can learn about ‘real body’ in our Candlesticks Basics Guide. Thus, although the buyers were successful in pushing for a new high, they failed to force a close near the session’s high.
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.
Candlestick patterns are all patterns related to the formation of the candlesticks. A candlestick shows the price movement of any given security/asset in any given timeframe. E.g. if you have chosen the weekly chart as your timeframe, one candlestick represents the price movement of one week for your selected pair.
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 shooting star is actually the hammer candle turned upside down, very much like the inverted hammer pattern. The wick extends higher, instead of lower, while the open, low, and close are all near the same level in the bottom part of the candle. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Room. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets.
This is evidenced by the formation of several bearish patterns, including reversal patterns, for example, hanging man, shooting star, and marubozu. The chart above shows two examples of a shooting star forex pattern that formed right at the end of periods when price advanced higher, followed by bearish reversals. That is to say that the upper wick of this candle is very prominent in comparison to the lower wick. Additionally, the open and close of this formation occurs near the bottom of the range.