The Shooting Star Candlestick Pattern is a bearish reversal pattern. The candlestick comprises of one candle which has a long upper wick and little or no lower wick. A Shooting Star is a single candlestick pattern that is found in an uptrend. The candlestick can mark a top (but is often retested). A Shooting Star is formed when price opens higher, trades much higher, then closes near its open. This bearish reversal candle looks like the Inverted Hammer except that it is bearish.
What is the Shooting Star Candlestick Pattern?
The Shooting Star appears in an uptrend and signifies a drop in price. When the price advances and shows a sudden drop, it leaves behind a long upper wick. This upper wick should be half of the length of the Shooting Star.
Also, the upper wick represents the buyers who were in a strong position during the day, but now they may be losing control because of the price drop.
The candle after the Shooting Star is what confirms the pattern. The following candle should be below the Shooting Star. Ideally, there is a gap between the confirmation candle and the Shooting Star. This helps in determining a price reversal. So, in this situation, we may look to go short.
Here’s what the pattern looks like on a chart:
You can recognize the shooting star candlestick pattern on the chart by looking at the upper shadow of the two candlesticks you’re analyzing, and how near the open, low, and closing prices are for the chosen time period. If the open, low, and closing prices are almost the same, you can see a shooting star formation that, often interpreted by traders as a sign for a bearish move.
The pattern can appear regularly on the forex charts. After the price reversal, you can notice lower lows and lower highs.
In some situations, the price continues to rise after the appearance of the Shooting Star. Here we could wait for the price action and go long.
The bullish version of the Shooting Star is the Inverted Hammer Candlestick Pattern and it looks similar. Both of them have a long upper wick with a small or no lower wick. However, the Inverted Hammer emerges in a downtrend and signals the potential price rise, whereas the opposite is true for the Shooting Star.
How to use the Shooting Star Candlestick Pattern?
Once spotted, the Shooting Star pattern can give signals for going short and some traders may set the stop-loss near the recent swing high.
A conservative trader might wait for a while and enter the trade in the middle. This means a trader is looking for a shorter trade, possibly with the tighter stop-loss.
However, the pattern is not flawless and requires the use of other technical indicators to confirm the signals.
Even though the Shooting Star is present, the prices continue to rise. In this situation, you could use momentum oscillators like the Stochastics or RSI to determine the overbought level.
In the chart above, you can notice that the Shooting Star is telling an overbought condition. The bulls were dominant, but right after Shooting Star’s appearance, the Stochastic is showing a drop in price levels, defining an oversold situation.
Besides this, the Shooting Star doesn’t define a short trade. Again, the momentum oscillators can help you outline a short trade.
A trader could simply enter on the open of the next candle or, if the trader was more conservative and wanted to capture a better risk-to-reward ratio, trade the retest of the wick (black dashed line). Retests of the wick tend to occur when the wick is longer than normal.
Shooting Star trading strategy
As the shooting star pattern comes close to a resistance level or a trend line, it can confirm the onset of a new bearish bias. It can act as a reasonably reliable pattern to identify a bearish reversal when it appears close to a resistance level.
As with any other candlestick pattern, it is an option to use the Shooting Star on multiple timeframe analysis. We could look for the Shooting Star on longer timeframes and determine entry points on shorter timeframes.
But as we already mentioned, it may not be wise to rely solely on the Shooting Star for a forex trading strategy. We could use other methods of technical analysis for confirmation.
The Shooting is bearish in nature, so it presents sell signals.
Shooting Star sell strategy
- Confirm the Shooting Star Pattern in an uptrend.
- Wait for the price bar to go bearish before entering the trade.
- Set a stop-loss near the recent high from the Shooting Star
- Exit the trade when the price rises.
Shooting Star Candlestick Pattern Conclusion
The Shooting Star Candlestick Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy. Many consider the Shooting Star a simple tool for helping to identify price reversals.
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