After the shooting star, selling must take place, albeit there is no certainty that the price will continue to decrease, or how far. Following a small fall, the price may continue to rise in line with the longer-term uptrend. You should short the security if you are able to detect the presence of these signals. After all, you’re expecting a bearish price move in the near future.
- This upward price move is considered as a correction or pullback trading opportunity.
- Options available for trend detection, lookback period, and selecting candle pattern.
- As such, we can confidently label this candlestick as a shooting star pattern.
- © 2020 All rights reserved My blogs and videos is only educational purpose on stock market and depend on my self research and analysis.
After this sluggish price action higher, we can clearly see that a shooting formation prints on the price chart. The actual shooting star candle has been magnified for easier viewing. Notice that it meets all of the criteria for correctly labeling it as a shooting star formation. Secondly, the upper wick is very prominent, and the open and close are both at the lower end of the range. The shooting star reversal candlestick boasts a success rate of about 69% when predicting bearish reversals from an uptrend. However, the low success rate indicates it cannot be relied on its own to provide accurate reversal signals.
How to trade this pattern
As the day progresses, though, the sellers step in and push the price back down to near the open, erasing the gains for the day. This shows that buyers lost control by the close of the day, and the sellers may be taking over. 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. I decided to republish this one without the trend filter and with all the major symbols active. Due to 15 different candlestick formations in this one script, it will be difficult to turn off the last few due to screen size.
As with any other candlestick pattern, it is an option to use the Shooting Star on multiple timeframe analysis. We could look for the Shooting Star on longer timeframes and determine entry points on shorter timeframes. The chart above clearly shows that the shooting star pattern emerges as soon as the RSI reading is above 70, asserting overbought conditions. The pattern forms at an area of strong resistance indicate that the price is likely to edge lower from the bullish setup. When the shooting star occurs, it first rises, implying the buying pressure experienced during the previous session is still in play.
Shooting Star Candlestick: Discussion
If you are rather aggressive, enter the trade at the opening of the next candlestick. As a trader, it is fairly easy to determine your next move by using this pattern. With reference to the chart above, the expected effect is lower prices. Before you start risking your own capital, you may want to consider opening a demo trading account. This way, you will practice with virtual funds and equip yourself with an array of trading patterns and formations to apply when you start trading live.
Our advice is to consult other indicators, like Fibonacci, trend lines, or moving averages, and decide whether to exit a positive trade or not. A dragonfly doji is a candlestick pattern that signals a possible price reversal. The candle is composed of a long lower shadow and an open, high, and close price that equal each other. Street Fighter V If the price rises after a shooting star, the price range of the shooting star may still act as resistance. For example, the price may consolidate in the area of the shooting star. If the price ultimately continues to rise, the uptrend is still intact and traders should favor long positions over selling or shorting.
He is the most followed trader in Singapore with more than 100,000 traders reading his blog every month… So, if you are long, then you can consider taking profits at Resistance, Swing highs, Fibonacci Extension, etc. That’s why you must have a stop loss in place so you can minimize the damage done What Is Bitcoin Mining to your trading account. There is a 2 candle shooting star, so be sure to check that one, also. The Shooting formation is created when the open, low, and close are roughly the same price. ThinkMarkets ensures high levels of client satisfaction with high client retention and conversion rates.
The best average move 10 days after the breakout belongs to shooting stars after an upward breakout in a bear market. I consider moves of 6% or more to be good, so the shooting star falls well short. The numbers suggest that this candle looks better than it performs. The two are usually reversal patterns that form at the top of a major rally.
On the price chart above you can see that the price action was moving higher. Notice how the market is making higher and higher swing lows, and making higher and higher swing highs as well. At some point during the uptrend, the momentum behind price action began to wane.
IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently best technical indicators for short term trading any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it.
Learn How To Trade the Shooting Star Candle Pattern
The shooting star is a bearish reversal candlestick that appears after a significant price advance. Therefore, it appears at the top of an uptrend suggesting that the price has peaked and the upward momentum is waning. With the MACD confirmation and the shooting star pattern – a selling position should be made with a stop loss above the highest level of the shooting star candlestick. With these conditions met, we should go back to the shooting star formation for further analysis. We want the shooting star pattern to have either touched or penetrated the upper line of the bearish channel. If you look closely at the shooting star formation once again, you will notice that the upper wick did in fact penetrate the upper line of the bearish channel plotted.
The shooting star pattern must occur above this uptrend line, and the price must break below this trendline within five bars of the shooting star formation. The actual sell signal will be triggered upon a candle close below this upsloping trendline, assuming that the other conditions have been met. As long as we can see that the price action is moving higher, with successively higher highs and higher lows, then we can be confident that an uptrend is in place. Once this condition has been confirmed, along with all the requirements for a valid shooting star pattern, then we will prepare for a potential short trade.
Increase your income and get compensated for your trading knowledge with ThinkInvest, putting you in control. No matter your experience level, download our free trading guides and develop your skills.
What is a Shooting Star Pattern?
Some of these patterns come in the form of a single candle, while others are seen as double and triple candle formations. It is easy to confuse the two candlestick patterns since they are similar in appearance. Both of them have a small or no lower shadow, tiny real bodies that are close to the candle’s lower portion, as well as long day trader salary upper shadows. For a candlestick to be considered a shooting star, the formation must appear during a price advance. Also, the distance between the highest price of the day and the opening price must be more than twice as large as the shooting star’s body. It is formed on the uptrend, that is – when the price has been moving upwards.
The shooting star candle and the inverted hammer share a significant attribute. However, they differ depending on when they occur and the trading signal they imply. The shooting star, on the other hand, can give confirmation to the new negative bias if it appears near a resistance level or trend line. This is due to the fact that a single candle does not play a significant role in the broader trend or market movement. As we have seen, the shooting star pattern is an important candlestick formation that can help us pinpoint the end of a major uptrend or a minor pullback within a downtrend.
How to Interpret Shooting Star Candlestick Patterns
The sellers have returned to the market with a high supply, they are getting stronger and are able to push the prices downards. Therefore, its time to go short – that is, sell the security, or cut the losses if holding a long position. However, even with confirmation, there is no guarantee that the price will continue to fall, or how far it will go. Unlike other patterns, a shooting star candlestick pattern gives no hint or target on how much the price will move. In fact, a shooting star candlestick patterns only indicate the price to decline, but the price could still keep advancing in alignment with the longer-term uptrend. The Shooting Star Candlestick Pattern is a bearish reversal pattern.