Guide To Understanding Shooting Star Candlestick Patterns

In this section, you will see examples of the formation of a shooting star on the USDCHF daily chart. To practise trades before committing to a live trading account, you can try out the IG demo account. You’ll get £10,000 in virtual funds to trade in a risk-free environment. For example, waiting a day to see if prices continued falling or other chart indications such as a break of an upward trendline. Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education.

• Once the Shooting Star emerges, it is important to wait for a conformation candle to be sure a reversal is in play.
• The next candle is a long bearish candle that confirms that a reversal is taking place.
• The stop loss order helps manage the risk if the original plan does not work as intended.
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• This means that when you add the MACD indicator to a trading chart, you’ll be looking for a crossover around the same price area where the shooting star candlestick pattern occurs.

Now that you have a good understanding of what the shooting star and a hammer candlestick pattern are, let’s take a look at how to use them to buy/sell stocks. 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. The shooting star is a bearish reversal candlestick that appears after a significant price advance.

Can a shooting star candlestick be green?

A red shooting star at the top means that the bulls tried to consolidate the price higher, but they failed. Like other candlesticks the shooting star has advantages and disadvantages. Further on the price chart, a hanging man reversal pattern appears, which warns market participants that the price has reached the top and could reverse soon. To start trading today, open a live IG account in just a few minutes or sign up for a demo account. Now that we have the shooting star confirmation criteria behind us, we will combine these three basic steps into a trading strategy.

When the RSI rises above 70, then the market is essentially in overbought mode and a bearish trend reversal is expected. When the RSI falls below 30, then the market is in an oversold condition and a bullish trend reversal is likely to happen. When the shooting star occurs, it first rises, implying the buying pressure experienced during the previous session is still in play.

Identifying the Shooting Star Pattern

A candlestick pattern is more significant when it occurs near an important level signaled by other forms of technical analysis. 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 greatest strength of this pattern, and as it is with a hammer, it gives you a clear level to play against. Another momentum technical analysis tool that can be helpful in confirming a trend reversal is the moving average convergence divergence or MACD.

Therefore, any accounts claiming to represent IG International on Line are unauthorized and should be considered as fake. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. Suddenly, a https://g-markets.net/ appears, which is marked with the green circle on the chart. We have a small candle body and a big upper candlewick, which confirms the shape of the pattern. You should always use a stop-loss order when trading the shooting star candle pattern.

What does Shooting Star tells you?

Nevertheless, there are cases where the price rises after the shooting star candle emerge. If the high of the pattern acts as resistance and the price fails to move up, the level would be considered a strong resistance level. Traders can place short positions at this level with a stop loss order a few pips above the shooting star highs.

• At the same time, we place a stop loss order at the highest point of the shooting star – above the upper candlewick.
• Therefore, it appears at the top of an uptrend suggesting that the price has peaked and the upward momentum is waning.
• 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.
• This shows that buyers lost control by the close of the day, and the sellers may be taking over.

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Best shooting star candlestick strategies

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. The inverted shooting star is a bullish analysis tool, looking to notice market divergence from a previously shooting star candlestick bearish trend to a bullish rally. An inverted shooting star pattern is more commonly known as an inverted hammer candlestick. It can be recognized from a long upper shadow and tight open, close, and low prices — just like the shooting star.

This is especially the case when the wick of a shooting star is also the new short-term high. Join thousands of traders who choose a mobile-first broker for trading the markets. The Relative Strength Index is a vital momentum indicator that indicates levels where the market is overbought or oversold. Readings above 70 imply market overbought, while readings below 30 assert oversold conditions.

How to Identify and Use the Shooting Star Candlestick Pattern in Forex Trading?

Thus, although the buyers were successful in pushing for a new high, they failed to force a close near the session’s high. Their inability is now a chance for the sellers to reverse the price action and erase previous gains. It can be a reliable signal at the top, supported by other reversal patterns such as hanging candle, dark cloud cover and bearish engulfing.

Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. Now we have a reason to believe that the price action could be reversed. We wait to see if the next candle is going to confirm the authenticity of the shooting star reversal pattern.

Our maximum loss will be equal to the distance between the level we short HPQ and the level of the stop loss order. This way, if the price creates an unexpected bullish move caused by high volatility, we will be protected. As you see, the candle has a small body located in the lower part of the pattern. The bullish version of the Shooting Star formation is the Inverted Hammer formation that occurs at bottoms.