The shooting star strategy has been backtested, and detailed results can be accessed for a small fee. Backtesting provides historical performance data, helping traders make data-driven decisions and assess the strategy’s expectancy. The following rules might help you improve the odds of success when trading the shooting star pattern. Unlike most other websites, we’ll go on to backtest the performance of the shooting star with strict trading rules (at the end of the article). The shooting star is sometimes referred to as the “shooting star Japanese candlestick” pattern. If you are able to identify the presence of these signals, then you should short the security.
- However, other indicators should be used in conjunction with the Shooting Star candlestick pattern to determine potential sell signals.
- Arjun is an active stock market investor with his in-depth stock market analysis knowledge.
- As the image above depicts, the candlesticks that follow the shooting star pattern depict a price decline with declining closing prices.
- Now that we have the shooting star confirmation criteria behind us, we will combine these three basic steps into a trading strategy.
- Like a hammer, an inverted hammer is a bullish reversal pattern that signals the growing presence of the bulls in the equation.
Now, the shooting star looks similar to the inverted hammer and hanging man patterns you may see. The rounding bottom pattern is a technical setup for the patient trader. This is because the pattern can take quite a bit of time to develop before any significant price moves begin.
Shooting Star: What It Means in Stock Trading, With an Example
A stop-loss order is a pre-decided order that states that a security can be either bought or sold when it reaches a certain price known as the stop price. 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.
Doji, on the other hand, has a body that is smaller than that of a shooting star and long upper and lower wicks. Shooting stars are however very similar in appearance to inverted hammer candlesticks. This is why the shooting star is a reversal pattern, as it implies price rejection at higher levels. Since the pattern occurs at the end of swing highs, which are often resistance levels, it signals a potential downward reversal. As with any other technical analysis candlestick patterns, you must know how to correctly identify the shooting star pattern in order to use it as part of your trading strategy.
If you want to take advantage of falling prices, you can do so via derivatives such as CFDs or spread bets. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. The reason we point this out is that often a hammer candle will precede a trend https://g-markets.net/ reversal in the same way that a shooting star will. As we will discuss in a moment, the psychology behind these candles are everything. As with the Inverted hammer most traders will see a longer wick as a sign of a greater potential reversal and like to see an increase in volume on the day the Shooting Star forms.
The previous candle should have an upward price movement, and the shooting star should signal a potential reversal. The primary difference between a shooting star candlestick and an inverted hammer candlestick lies in the context in which they appear. Shooting star candlesticks appear at the end of an upward price movement and mark the beginning of a trend reversal to a downward price movement.
How to Trade Shooting Star Candlestick Patterns
This upside down shooting star indicates potential bullish momentum instead of bearish. A shooting star pattern is formed in a stock chart when the price is in an uptrend, and a candlestick with a small body and a long upper wick appears. The size of the upper wick must be at least twice the size of the body, and the candlestick must have no lower wick or a very small one.
The reason we decided to trade this opportunity is that we had two additional signs that signaled an impending reversal. Data-driven crypto and stock traders enter long when the price drops below and retraces above the pattern low, setting a stop loss of one ATR. This shooting pattern gets its name from its shooting star-like appearance on a candlestick chart where the price is coming down to earth. Reach out to [email protected] today to have your Shooting Star candlestick pattern indicator coded for MT4 and MT5. The skilled MQL4 programmers at 4xPip specialize in crafting custom indicators tailored to your needs. In fact, there are other candlestick patterns that have the exact same shape, like the Inverted Hammer candlestick pattern.
How to Identify the Shooting Star Pattern?
On the way down, the price creates one correction during the bearish move. The downward activity then resumes and 18 periods after we short HPQ, the price action closes a candle below the minimum target of the pattern. However, caution would have to be used because the close of the Shooting Star rested right at the uptrend support line for Cisco Systems.
Is There A Bullish Shooting Star Pattern?
The three main advantages of shooting star candlesticks are listed below. 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. Another momentum technical analysis tool that can be helpful in confirming a trend reversal is the moving average convergence divergence or MACD.
Moving Average Convergence Divergence (MACD) and Shooting Star Candlestick Pattern
We need confirmation while shooting star patterns, but when trading evening star patterns, we don’t need confirmation and can directly enter the pattern. This is the major difference between a shooting star and an evening star candle. With this pattern, we need confirmation cause we are not sure that the uptrend has now changed to a downtrend. Confirmation requires closing the next candle below the shooting star’s low/close. The high made by the shooting star may work as resistance for the next few candles.
How to Trade with Shooting Star Candlestick Pattern in Stock Market?
Shooting star candlesticks are straightforward patterns that even beginners can comprehend very easily. The pattern is formed when the price trades higher during a trading session and later declines to close around the opening price of the session. This creates a long upper wick, a small body, and little or no lower wick. We want to clarify that IG International does not have an official Line account at this time. We have not established any official presence on Line messaging platform. Therefore, any accounts claiming to represent IG International on Line are unauthorized and should be considered as fake.
A shooting star candlestick is structured with a real body, a long upper tail or wick and a short or no lower tail or wick. A shooting star candlestick’s structure represents the rapid downward movement of the price toward the close of the market. For a candlestick pattern to be considered a shooting star, the upper wick must be at least twice the length of the body of the candlestick.