In both cases, an occurrence of the shooting star at the top of an uptrend only generates a signal of an impending reversal and it shouldn’t be taken as a direct trading signal. For aggressive traders, the Shooting Star pattern illustrated below could potentially be used as a sell signal. In fact, there was so much resistance and subsequent selling pressure, that prices were able to close the day significantly lower than the open, a very bearish sign. In the CSCO chart above, the market began the day testing to find where supply would enter the market.

• The two candlesticks should have alternating colors with the first confirming the current trend and the second indicating a weakness in the trend.
• The longer the upper shadow, the higher the potential for a reversal.
• To be termed a shooting star, a candlestick must form during a price gain.
• After all, nothing is 100% guaranteed in stock trading, and you may experience false signals when trading the shooting star pattern.
• As can be seen above, the stock prices were moving in an uptrend until the shooting star formed.
• The uptrend accelerates just prior to the formation of a shooting star.

As a trader, you can observe the market through simple patterns such as price bars, trend lines, or breakouts. On the other hand, you can go for a detailed combination of channels, volatility, and candlesticks. In this case, the shooting star signaled what turned out to be only a short-term reversal. However, the pattern sometimes indicates a long-term reversal from an overall uptrend to an overall downtrend. Any sustainable move, with a high close, above the candle’s high, invalidates the pattern. Take-profit order is dependent on your trading style and risk management.

How to Use Shooting Star Candlestick Pattern to Find Trend Reversals

Level up your trading activity — discover the INFINOX experience today. A correction is a negative move in the price that unwinds a larger positive move higher. Corrections tend to be viewed as an opportunity to buy for the next move higher. The Chinese Government has set out its growth plans for the year.

It could be a possible https://g-markets.net/ of bearish reversal, meaning an uptrend might not continue. A shooting star candlestick is a unique charting pattern that comes at the end of an uptrend and indicates a potential trend top area followed by a trend reversal. This bearish reversal candlestick has a long upper shadow, little lower shadow, and a small body. Traders should be careful not to confuse the shooting star pattern with the inverted hammer candlestick – as both have a longer upper wick and small body. However, the inverted hammer signals bullish as opposed to bearish reversal, and it is often observed at the bottom of a downtrend.

Strategy 1: trading with confirmation

Put a stop loss right above the upper candlewick of the shooting star figure. Noice the red candle that follows immediately after the annotated shooting start? Examining the performance statistics confirms that the shooting star acts as a reversal 59% of the time. Thus, although price reverses more often than not, do not depend on that happening. A shooting star forms at the top, and an inverted hammer at the bottom.

It is a dual shooting star candlestick pattern pattern with the first candlestick being light in color and having a large real body. The second candlestick must be dark in color, must open higher than the high of the first candlestick and must close down, well into the real body of the first candlestick. The deeper the second candlestick penetrates the first, the more reliable the pattern becomes.

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Candlesticks Patterns at a Glance

Harmonic patterns are one of the most efficient and effective trading patterns. What is Buy the Dip Strategy in Trading – Working and Example ‘Buy the dip’ is one of the most common phrases in the stock market. The Hammer pattern is called a takuri in Japanese, which means testing the water for its depth. This is the bullish version of the pattern while the bearish … Free members are limited to 5 downloads per day, while Barchart Premier Members may download up to 100 .csv files per day. Unique to Barchart.com, data tables contain an option that allows you to see more data for the symbol without leaving the page.

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Price action trading takes into account various technical analysis tools including high and low swings, price bands, trend lines, and charts. A shooting star is a single-candle bearish pattern that generates a signal of an impending reversal. Similar to a hammer pattern, the shooting star has a long shadow that shoots higher, while the open, low, and close are near the bottom of the candle.

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The longer the upper shadow, the higher the potential for a reversal. Determine significant support and resistance levels with the help of pivot points. 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.

ThinkMarkets ensures high levels of client satisfaction with high client retention and conversion rates. Harness past market data to forecast price direction and anticipate market moves. The bullish version of the Shooting Star formation is the Inverted Hammer formation that occurs at bottoms. The Shooting Star formation is considered less bearish, but nevertheless bearish when the open and low are roughly the same. The Shooting formation is created when the open, low, and close are roughly the same price. Full BioSuzanne is a content marketer, writer, and fact-checker.

If you look at this candle only, the situation looks very positive for the bulls, as there is an uptrend in action and the new high has just been posted. You can try your hand at spotting the shooting star pattern along with other technical indicators using the Metatrader 5 trading platform. Both the green and red versions are considered to be shooting stars although the bearish candle is more powerful given that its close is located at the mere bottom of the candle. Again similar to a hammer, the shadow, or wick, should be twice as long as the body itself. Between 74%-89% of retail investor accounts lose money when trading CFDs.

For this reason, place the shooting star candle pattern above the upper wick of the pattern. All ranks are out of 103 candlestick patterns with the top performer ranking 1. “Best” means the highest rated of the four combinations of bull/bear market, up/down breakouts.

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Consequently, prices start to edge lower as bears appear to be winning the battle. At the end of the session, the price retreats from the highs of the session and closes near the opening price. One of the main benefits of the shooting star pattern in technical analysis is that it is a simple formation to identify.

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Despite the small correction on the way down, the shooting star reaches the target of three times the size of the candlestick. Therefore, we sell the security after the pattern confirmation. At the same time, we place a stop loss order above the upper wick of the shooting star candle in order to secure our short trade.