Shooting star Candlestick guide
Shooting stars are common candlestick patterns in technical analysis. In fact, the shooting star candlestick pattern comes in the form of a single candle formation in forex charts and crypto markets in order to provide traders with bearish reversal potentials. To explain, it emerges at the market top as a warning of an ending uptrend and a likely downside reverse. Traders use the structure either to identify a short entry or to quit the trade once a shooting star arises in the crypto charts and forex markets. To explain, when prices accelerate higher, the considered candle begins bullish and large at the same time. Yet, prices starts to drop as fast as they advanced during that session. Consequently, the shooting star candle closes relatively near its open price on the candlestick chart.
Shooting star candle FAQ
What is a Shooting star candle?
A Shooting Star pattern is a single Japanese candle that forms on candlestick charts. To clarify, an advancing trading instrument abruptly falls down when the pattern materializes, leaving a prolonged upside wick just behind. That is why traders view it as a bearish reversal candlestick pattern that occurs at the top of upward moves. Both progressive and new FX traders may utilize the formation as it is easy to spot on the trading chart. Besides, it is widespread for all periods such as intraday, daily, weekly, and also monthly charts. Hence, currency traders have better incorporate the reliable shooting star candlestick pattern in their forex trading strategy in order to trade with more confidence in the FX market.
Moreover, the shooting star stands for a volatile bearish reversal structure in the cryptocurrency market after an extended upside movement. Thus, crypto traders also highly employ this candlestick pattern in order to analyze volatile moves.
What does a shooting star pattern look like?
A shooting star pattern is a kind of candle formation that builds over three steps. First, the security price opens in normal conditions. Second, it advances significantly during the trading session. Third, it declines and closes near its opening, leaving behind a long wick. Thus, the bearish shooting star materializes when the lowest and close of the candlestick are roughly equal. Besides, the shooting star formation is confirmed if the length of the wick is at least twice the candle body. The following graph depicts what the shooting star formation looks like:
How to identify it?
The main criterion to identify a shooting star formation is the already existent uptrend. That is to say, bulls should be dominating the coins market prior to the shooting star building. This can be spotted by at least 3 bullish candles before the building of the shooting star candlestick. Besides, the length of the upper shadow should be double the body of the candle which must have a smallish lower shadow also. All of these symptoms will simplify the identification of the bearish reversal shooting star candlestick pattern. We can notice on the MetaTrader chart below that the bullish move reversed towards a bearish trend after the shooting star formation. To explain, the candle next to it is a strong reversal sign itself. In fact, it is the famous Gravestone_structure.
Shooting star pattern during an uptrend
During an uptrend move, the shooting star pattern emerges as a single candle pattern signaling a possible revision in the price activity. On the one hand, The reversal signal is stronger when this pattern arises after an uptrend. Because its long upper shadow alerts chartists about an imaginable new downtrend. On the other hand, when the shooting star pattern emerges in the middle of the trend or at the base of a downward movement, there is no guarantee that the move will reverse.
What makes it candlestick bearish?
A shooting star candlestick is considered a strong bearish formation as bears were capable of rejecting bulls entirely by succeeding in dropping the price lower and lower during the session. In fact, sellers were able to drive the price even lower by closing it below its opening in the case of a red bearish shooting star. Note that the green shooting star structure is regarded as less bearish than the red one. Because sellers were capable to counteract buyers but were not capable to carry the financial asset back to its open price. Yet, it is still bearish especially, when opening and low prices are approximately equal. This demonstrates that bulls have lost authority by the day ending. And that bears have taken control of the crypto market to initiate a bearish move as the shooting star candlestick has marked a top.
How to trade with it ?
The shooting star candlestick pattern is a bearish reversal design that provides forex traders with suitable and reliable entry points, stops, and profit targets. Besides, multiple trade setups exist following the aggressive or conservative profile of the trader.
From one part, if the trader has already been in a long position when the shooting star candlestick pattern happens, then the structure may signal that it is time to exit the trade. So, long-positioned investors have better consider locking their profits before a likely trend change occurs and the price corrects downer.
From another part, chartists can seize the best short entry points especially when the subsequent price activity below the shooting star candle would confirm the price reversal. To explain, aggressive traders may enter a short position immediately with the opening of the subsequent candle following the shooting star pattern formation. Nevertheless, conservative traders may wait for the opening of the subsequent candle to confirm the reversal. Because the price activity may not instantly fall and bears may not directly grab command of the foreign exchange market. Prices may experience a sideways move just before the trend reverses and the new trend starts. To clarify, this implies that bulls and bears are fighting to control the exchange after the shooting star formation.
The stop loss can be placed just above the high wick of the shooting star candlestick. To explain, this high is almost a resisting grade where the price was rejected from. Hence, forex traders prefer to place their stops beyond this grade. Because once the price cuts this level, the pattern often invalidates and the uptrend continues its way.
There are two ways to place the take profit. Either, it is twice the undertaken risk. Or, it is two times the height of the shooting star pattern. To explain, we consider the wick and the body of the candle in the second case. That is to say, the distance between its high and low prices. However, traders may take a profit when the price action is visibly exhausted.
The core of the shooting star candlestick is a bullish trap that drags buyers who expect more highs. In fact, the shooting star pattern highlights a top and causes the forex market to reverse abruptly. Note that this formation is more reliable when it occurs near supporting grades. Besides, it suits forex and crypto traders to trade all timeframes and financial assets. In short, it is so simple to identify and trade the shooting star as it provides investors with relevant entry, stop-loss, and take-profit grades.