Shooting Star Candlestick: What Is It and How to Trade It?

If the RSI shows a value above 70, it suggests that buying pressure has peaked and a reversal might be imminent, making the Shooting Star pattern even more reliable. This approach helps to maximize profits while maintaining a balanced risk exposure. By placing the stop-loss at this level, you limit potential losses while allowing enough room for the trade to develop. Finally, monitor overall market conditions and related news that could impact price movement. Overall, the Evening Star is considered more reliable than the shooting star due to its broader context and structure.

Let’s see how these indicators can complement the shooting star candlestick pattern. High volume on the day that the shooting star forms and a bearish confirmation candle the next day, suggests strong selling pressure, reinforcing the likelihood of a trend reversal. Conversely, low volume weakens the signal, increasing the chances of a failed setup.

Aggressive Approach

Additionally, the stochastic oscillator’s %K line has turned down from overbought and a bearish crossover appears imminent—clear evidence in favor of a reversal. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Academy. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets. We have no knowledge of the level of money you are trading with or the level of risk you are taking with each trade. 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.

One way to do this is to wait for a bearish candle to form after the shooting star. This confirms that the sellers are gaining control, and that the uptrend may be over. So now we have protected the position in case the trade begins to move against us. Fortunately for us, the price action started to move lower precipitously following the breakout signal. Our exit plan calls for monitoring the price action closely and waiting for a candle close above the nine period simple moving average line. This is evident from the closing price within the shooting star, which occurs within the lower one third of the price range.

• The appearance of a shooting star at the top of an uptrend suggests that the market is exhausted.
• This sudden shift in sentiment can often signal the end of the current uptrend, making the shooting star an important pattern for traders looking to capitalize on potential trend reversals.
• A shooting star pattern near a significant resistance level or at the top of an uptrend carries more weight and increases the probability of a reversal.
• That being said, the market has a tendency to retest the price levels rejected during the formation of a shooting star candlestick, so it’s actually pretty common to get a pullback to the 50% level.
• Let’s now take a closer look at two typical scenarios wherein the shooting star formation is often seen.
• So, if the primary trend is up, then the corrective phase would occur as prices are moving lower.

Occurrence After an Uptrend

• Once you’ve established a good resistance level, you can look for bearish candlesticks patterns, like the shooting star, forming at or near the level.
• Once confirmation is received, traders may enter a short position or sell their existing long positions.
• Depending on your comfort level and style of trading, you may choose one entry method over the other or choose some other variation altogether.

The examples used in this article are geared toward the Forex market, but trading the shooting star is effective in any market. The Inverted Hammer occurs when the price has been falling suggests the possibility of a reversal. Shooting Star confirms a price decline, especially if the chart following this pattern indicates the same trend. Thus, the Shooting Star Candlestick Pattern helps predict future market trends more accurately and, accordingly, make the right decisions. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools.

And finally, the size of the body within the candle should be relatively small. If you examine the shooting star formation here, it’s quite evident that all of these characteristics have been met. First and foremost, we will need to spot a potential shooting star formation on the price chart. Referring to the upper magnified area on this price chart, we can clearly see the forex shooting star candle formation. Now that we have recognized a shooting star formation on the price chart, we need to confirm whether or not it occurs in the context of a rising market. Obviously, we can see that the price action preceding the shooting star was clearly bullish.

How to Trade the Shooting Star Pattern

It is a popular reversal candlestick pattern that occurs frequently in technical analysis and is simple and easy to identify. The shooting star pattern is a reversal pattern that signals a potential trend reversal from bullish to bearish. It occurs when the market is in an uptrend, and the bulls are pushing the price higher.

The candlestick signals a potential trend reversal from bullish to bearish.

If the market closes near the low of the candlestick, it confirms that sellers have overwhelmed the buyers, and a bearish trend may soon follow. 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. It’s important to not only study the anatomy of the shooting star pattern, but also to realize the conditions under which it is most effective. If however the price begins to move in our favor following a short entry, then we will watch the price action closely as it trades within the bearish channel. The exit signal would be triggered upon the price touching the lower line of the bearish channel.

We’re also a community of traders that support each other on our daily trading journey. During the previous candles, the bulls have been in control, pushing the prices higher and into an established uptrend. The best time to trade is after confirmation, typically when the next candle closes lower, confirming the reversal. The aggressive approach is designed for traders who are comfortable with higher risk in exchange for potentially greater rewards.

However, in recent years, I’ve completely abandoned the standard entries used with the shooting star candlestick pattern in favor of the confirmation entry discussed below. In contrast, the gravestone doji has no or a tiny real body, as the open and close prices are identical or nearly identical, with a long upper shadow and no lower shadow. The gravestone doji suggests strong indecision in the market, with buyers initially driving prices up but ultimately failing to maintain that momentum, which often signals a sharp reversal. The shooting star features a small body at the lower end of the candlestick with a long upper shadow, signifying a failed rally. Using moving averages alongside the shooting star pattern can give you a clearer sense of trend direction and potential reversals. Both the Shooting Star and the Gravestone Doji are bearish patterns signaling potential reversals at the top of an uptrend.

As such, that event served as the confirmation for a short entry based on this trade set up. We will place a market order to sell immediately following the close of that candle. We want to build a simple yet effective strategy for trading the shooting star that will be easy to implement in the market. Firstly, we want to confirm that an uptrend exists prior to the shooting star formation. This is an important requirement because we know that a valid shooting star pattern should occur in a rising market.

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The inverted hammer candlestick pattern appears at the bottom of a downtrend and resembles the shooting star, with a small body and long upper shadow. As you can see in the example above, the MACD crossover did not happen in the exact price level of the shooting star candlestick. Instead, the crossover was confirmed a few candles later, which eventually signaled a trend reversal. Candlestick patterns are formed when multiple candlesticks are combined in a specific way.

It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. Nathalie Okde is an SEO content writer with nearly two years of experience, specializing in educational finance and trading content. Nathalie combines analytical thinking shooting star forex with a passion for writing to make complex financial topics accessible and engaging for readers.

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. This can be seen by the overlapping price action leading up to the shooting star candle.