A shooting star occurs after a price advance and marks a potential turning point lower. An inverted hammer occurs after a price decline and marks a potential turning point higher. The candle that forms after the shooting star is what confirms the shooting star candle. The next candle’s high must stay below the high of the shooting star and then proceed to close below the close of the shooting star.

  • The shooting star candlestick pattern is a powerful tool for forex traders.
  • The shooting star pattern indicates that buyers were initially in control but lost momentum, allowing sellers to push prices lower before the close.
  • More specifically, when the price crosses above and closes above this nine period simple moving average line, we will exit the position completely.
  • However, the buyers lose control over the price action, which initiates the pullback.
  • The shooting star candle is most effective when it forms after a series of three or more consecutive rising candles with higher highs.

It can be used to identify potential trend reversals and make profitable trading decisions. When trading the shooting star pattern, it’s important to look for confirmation from other technical indicators, use a stop loss, pay attention to the context, and consider shooting star forex the timeframe. With these tips in mind, you can use the shooting star pattern to improve your forex trading results. Forex traders observing the shooting star candlestick will often look for confirmation signals to support any trading decision based on it.

However, if you want to go with a conservative trade setup, always place a stop loss above the resistance zone instead of placing a stop loss just above the high. A shooting star forex pattern is therefore a bearish reversal candlestick that generally appears after a rise in price and signals a potential change in trend direction. To fully grasp the shooting star pattern, let’s break it down into its components. The small body represents a small difference between the open and close prices of the trading session. The long upper shadow demonstrates that the market reached a high level during the session but couldn’t maintain it. The short or nonexistent lower shadow signifies that there was little to no buying pressure during the session.

Buy Signal

Here, we will be looking for a valid shooting star pattern that occurs in the context of a downtrend. The shooting star pattern must still occur after a price move higher, however in this case, that price rise should be a correction to the larger downtrend. Once we have identified these conditions, then we will prepare for a short trade. This time we will look at trading the shooting star candlestick when it appears within the corrective phase of a larger down trending market.

Additionally, it also forms after a corrective phase within the context of a larger downtrend. We will be taking a closer look at both of these scenarios in this lesson, but for now, it’s important to understand a few primary characteristics of the shooting star pattern. And that is, that it is a single candle formation with bearish implications and that it occurs after a price rise.

For example, waiting a day to see if prices continued falling or other chart indications such as a break of an upward trendline. Shooting star pattern looks exactly like Inverted Hammer but there is a major difference between them. The Inverted Hammer pattern is formed during a downtrend while the Shooting star is formed during an uptrend. TradingWolf and all affiliated parties are unknown or not registered as financial advisors.

Shooting Star Trading Example  – Counter Trend Setup

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What is a shooting star candlestick pattern?

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Shooting Star vs. Inverted Hammer

Forex trading is an exciting and dynamic field that is filled with a wide variety of trading strategies and tools. One of the most popular and widely used tools in forex trading is the candlestick chart. Candlesticks are a powerful way to analyze price movements and identify potential trading opportunities. One of the most important candlestick patterns in forex trading is the shooting star.

A schematic diagram showing how the shooting star candle might look on an exchange rate chart appears below. The shooting star shows the price opened and went higher (upper shadow) then closed near the open. The following day closed lower, helping to confirm a potential price move lower. The high of the shooting star was not exceeded and the price moved within a downtrend for the next month.

How To Spot Resistance With Shooting Star Patterns

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. It has all of the characteristics that we like to see within the structure.

Is There A Bullish Shooting Star Pattern?

The Relative Strength Index is a vital momentum indicator that indicates levels where the market is overbought or oversold. Readings above 70 imply market overbought, while readings below 30 assert oversold conditions. Let’s now take a moment to dissect the anatomy of a shooting star formation. The patterns are good for trading shares, commodity futures, Forex currencies, etc.

So, if the primary trend is up, then the corrective phase would occur as prices are moving lower. Similarly, if the primary trend is down, then the corrective phase would occur as prices are moving higher. The price action moves higher again in the session, fails to create a new high, and reverses to close at the low of the session. The additional confirmation methods explained in this article play an important role in identifying the shooting star candles that may lead to the highest probability set-ups. With additional confirmation based on the red candlestick and volume indicator, the next step in our strategy will explain how and where to place entry, stop-loss, and target orders. During the previous candles, the bulls have been in control, pushing the prices higher and into an established uptrend.