Just like I mentioned in my article on the bearish engulfing pattern, I also take the entry at 50% of the total range of the shooting star in certain situations (see the image below). Next, you should determine whether or not the confirmation candlestick closes in the lower 1/3rd of its total range (see the image below). For this demonstration, we’re going to look at the bearish shooting star or the inverted hammer. We need to train our eyes to read the sentiment of the hammer candle, taking in consideration the whole market environment. The shooting star inverted hammer is only reliable when they occur at the end of uptrends.
- The kinds of trade setup we’re going to propose through this reversal trading strategy have an astonishingly high rate of success.
- This candle would have been more powerful if the closing price is below the opening price.
- The upper shadow must be at least twice the length of the candlestick’s real body.
Price presented a volatile shooting star for the close of Thursday. Take that into consideration next time when you’re able to find a shooting star candle that satisfies all the rules outlined in this trading strategy guide. The location, or where the shooting star candlestick develops, matters a lot. We don’t recommend to be an aggressive trader when trading shooting star chart patterns. The shooting star candle is only confirmed once we break below the low of the candle.
It could be a possible signal of bearish reversal, meaning an uptrend might not continue. As this occurred in an uptrend the selling pressure is seen as a potential reversal sign. After encountering this pattern traders often check for a lower open on the next period before considering the sell-signal valid. The shooting star candle strategy explores a small bearish reversal candlestick pattern that looks similar to the inverted hammer.
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. The shooting star candle is most effective when it forms after a series of three or more consecutive rising candles with higher highs. It may also occur during a period of overall rising prices, even if a few recent candles were bearish. I don’t like to trade price action signals on their own, although I know of traders that are successful with that approach.
However, most new traders (and many experienced traders for that matter), tend to see support and resistance levels everywhere. Of the two standard entries, I prefer this one because it creates a slightly better reward falling star candlestick to risk scenario. The idea behind this filter is to avoid taking significantly smaller price action signals. In my experience, this is especially important when trading the shooting star candlestick pattern.
For this reason, place the shooting star candle pattern above the upper wick of the pattern. At this point, the longs who were late to the party begin to get scared and start to sell out as well. This panic long selling and short selling leads to a sharp reversal in the price action, thus generating a small candlestick body on the chart. In order for a candlestick to be termed as a shooting star, its formation has to occur in the midst of a price advance.
Advantages of using the Shooting Star candlestick pattern in trading
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. Your stop loss should always be placed at the nearest logical area where, if price reaches that area, you know that you are wrong about the trade. In the case of the shooting star pattern, you know you’re wrong if price makes a new high.
The Doji can be either a bullish or a bearish trend reversal, depending on where the Doji a… We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. This is the 2-minute chart of Hewlett-Packard from June 10, 2016. Now that we have the shooting star confirmation criteria behind us, we will combine these three basic steps into a trading strategy.
Of course, using this entry technique means that occasionally you will not get a pullback at all and the market will simply take off without you. Again, I’m personally not bothered if that happens as this method has worked out very well for me in the past (quality over quantity). I’ll go over the new entry techniques in detail later in the article. I’m personally okay with that because it’s always preferable to trade quality over quantity.
The Shooting Star consists of three candlesticks, with the middle candlestick being a small Star that takes the form of an inverted umbrella line. The first candlestick in the Shooting Star must be supportive of the uptrend and, hence, must be light in color and must have a relatively large real body. The second candlestick is the Star, which is a candlestick with a short real body that gaps away from the real body of the preceding candlestick.
The Shooting Star Candlestick Pattern & the Hammer Candlestick pattern
This would place the entry much closer to the protective stop and would reduce the capital at risk on the trade, though there is no guarantee that a pull-back will occur. One of the biggest implications of the formation of the shooting star candlestick pattern is that security has reached its zenith, and is about to fall. It forms during an atmosphere of rising prices and a few bearish candlesticks. Resistance, like price, is a leading indicator, so that’s a great place to start when trading bearish candlestick patterns.