As a price action trader, there are many things to look out for when using the shooting star pattern to identify a trading opportunity. The first thing is how to identify the pattern, and the other is how to trade it. It can be used in any timeframe, as the pattern can form in any timeframe. As a bearish reversal pattern, the Shooting Star is a great pattern to watch for when the price is on a downtrend. Ideally, to increase the accuracy, we want to trade the Shooting Star candlestick pattern by combining it with other types of technical analysis or indicators. In fact, there are other candlestick patterns that have the exact same shape, like the Inverted Hammer candlestick pattern.
Bullish and Bearish Shooting Star Candlestick Patterns
Here is another example of the shooting star strategy currently at play in the S&P 500 Index e-mini futures (see the chart below). See the chart of Bruker Corporation’s stock (BRKR) chart below showing a triple top chart pattern. Depending on the strength of the trend, different levels are more likely to work better with the Shooting Star pattern. Here you can learn more about the different Fibonacci retracement levels. Support and resistance levels are great places to find price reversals. A Shooting Star appearing after this bullish move is a sign of a possible reversal to the downside.
How Often Does the Shooting Star Candlestick Pattern Happen?
The accuracy of shooting star candlestick patterns varies depending on the candlestick patterns that follow the shooting star candlestick. The trend is confirmed to be a bearish trend only if the candlestick pattern that follows a shooting star depicts a price decline. Sometimes the candlestick pattern that follows a shooting star pattern shows a price increase. A price increase that immediately follows a shooting star could also imply the formation of a resistance area around the candlestick. A resistance area refers to a point on the price chart that a security experiences difficulty in breaking and moving above in a specified time frame.
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Stop-loss orders help to reduce the loss from trading by locking in a profitable position. It is advisable to enter stop-loss orders while trading with shooting stars as it protects the investors from incurring huge losses when the price plummets. As shown in the image above, a stop loss order can be placed right above the upper wick to minimize losses and gain maximum returns.
Step 3: Where Does The Shooting Star Candlestick Appear?
A trader who went short at the open of the next candle would be in profit as the market declined heavily on Wednesday and Thursday before profit-taking came in on Friday. In a down-trending market, you can use the shooting star pattern to short rallies in a downtrend. To trade this strategy, you will need to confirm that the price is in a downtrend and then look for possible resistance levels where a rally can reverse. When the price gets to that level, wait for a shooting star pattern to form and then enter a short position. In continuation with the already existing upswing, the bulls pushed the price up and may even drive it to a new high. However, the bears stepped in and put up a big fight, forcing the price back down to close around the open price.
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Should the subsequent candle open weak and finish below the shooting star’s low, the bearish scenario gains credibility. This behavior indicates that sellers have followed through, rather than letting the price bounce back. Entering a short position upon or after this confirmation helps avoid jumping in too soon. During the session, buyers initially appear dominant, forcing the price above the open. However, once the candle closes, if the body is substantially closer to the session’s low, it reveals that sellers succeeded in getting control from buyers near the top.
Confirming it with other technical indicators can enhance its reliability. This pattern alerts traders to tighten stop losses or prepare for a potential change in their trading strategy. The Shooting Star candlestick pattern is a compelling tool in the shooting star candlestick toolbox of technical analysis, offering crucial insights into market trends.
Once price has moved in your favor a bit, you can move your stop loss to break even. This step is optional, but I do it myself and recommend it – especially when trading reversal patterns. In the image above, the large shooting star candlestick was larger the all the previous 7 candlesticks shown. However, the small shooting star was one of the smallest candlesticks in the series.
Shooting star candle strategy backtest
The shooting star is a bearish candlestick pattern that could mark the temporary end of an uptrend. Conversely, the cousin of the shooting star pattern – the inverted hammer – is a bullish reversal candlestick pattern. If a shooting star candle closes in red instead of green, it signifies stronger bearish pressure from sellers at the price zone. When combined with other factors, a red shooting star candlestick can provide a great sell signal for traders to enter. It’s a single candlestick with a bigger real body and a large upper wick.
- It has a small body near the bottom of its range, no or very little lower wick, and a long upper shadow that indicates buyers drove the market higher but were eventually overpowered by sellers.
- A shooting star candlestick is a price pattern that is formed when the price of security opens and first advances and then declines and falls to a price close to the opening price.
- Understanding and applying these nuances can be the difference between a good and a great trading decision.
This pattern is characterized by a small body with a long upper shadow, similar to its bearish counterpart, but it signals an unsuccessful attempt by bears to drive prices lower. The presence of a Bullish Shooting Star may indicate that sellers are losing steam and a bullish reversal could be imminent, offering a potential entry point for buyers. Understanding the types of Shooting Stars is crucial for traders. Typically, a classic Shooting Star has a small lower body, a long upper wick, and little or no lower wick, resembling a falling star. Variants like the Doji Shooting Star, with a smaller body, also exist and require careful analysis.
Traders tend to wait for confirmation—whether it’s a bearish close in the following session, fading momentum, or declining volume—to separate meaningful reversals from market noise. While the shooting star is often considered the stronger of the two signals, both can provide valuable clues when viewed in the proper context. Shooting star patterns occur after a stock uptrend, illustrating an upper shadow. Essentially the opposite of a hammer candlestick, the shooting star rises after opening but closes roughly at the same level of the trading period. The shooting star pattern is a bearish reversal pattern that consists of just one candlestick and forms after a price swing high. It is seen after an asset’s market price is pushed up quite significantly but then gets rejected at higher prices, which indicates that the price may be about to decline.
Some of the earliest technical trading analysis was used to track prices of rice in the 18th century. Much of the credit for candlestick charting goes to Munehisa Homma (1724–1803), a rice merchant from Sakata, Japan who traded in the Dojima Rice market in Osaka during the Tokugawa Shogunate. According to Steve Nison, however, candlestick charting came later, probably beginning after 1850. On the other hand, the Morning Star is a bullish reversal pattern that emerges after a downtrend, consisting of three candles with the middle one gapped away from the others. It’s essential to recognize that despite some visual similarities, these patterns convey different market information. The frequency of the Shooting Star candlestick pattern in markets varies.
- We explain its comparison with hammer & inverted hammer candlestick, and how to trade it.
- This indicates a rejection of higher prices and suggests that a reversal might be forthcoming.
- Although it’s not entirely foolproof, this mitigates the amount of false signals one receives with the shooting star alone.
- It suggests that the bullish sentiment is weakening and a bearish phase may begin.
Occurring in an uptrend, it indicates that despite the closing price being higher than the opening, sellers were able to push the price down from its highs significantly. This pattern implies that bullish momentum is waning and bears are starting to exert pressure. While not as strong a reversal signal as the red variant, a green Shooting Star should still prompt traders to reassess their positions and strategy. Larger candlesticks are more significant as far as what they can tell us about current market sentiment. Therefore, a relatively large shooting star candlestick is a more significant bearish signal than a relatively small one.