Shooting Star candlestick pattern is among the most popular patterns traders use to identify a potential trend reversal.
This pattern is easy to understand and can be combined with other technical indicators to take trades.
In this blog post, we will look closer at this candlestick pattern, what it is, what it tells you, etc.
What is a Shooting Star?
Shooting Star Candlestick Pattern is a bearish reversal candlestick pattern. It has a small body, and the upper wick size is at least twice the size of the body.
This candlestick has no lower wick, or sometimes it has a tiny lower wick, which is okay.
The price must be in an uptrend before this candlestick forms.
The color of the body does not matter, although a red body is more powerful than a green one.
What does the Shooting Star tell you?
Shooting Star Candlestick shows price reversal and high made by the price at the time frame.
If a shooting star is found after 2 or 3 strong bullish candles, then there is a high probability that this will work great as a reversal.
This candlestick pattern formation in trading psychology refers to a scenario where, after the opening price, the buyers attempt to push the price up during an uptrend.
However, the sellers join in later and push the price down, often dropping it below the opening price. This action indicates that buyers are losing strength while sellers are gaining momentum to take control of the price.
The long upper wick shows buyers who bought at a higher price in hope are losing as the price drops back to the open.
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.
And if the next candle starts to trade above the high made by the shooting star, then the price is still in uptrend, and the pattern has failed.
Example of How to Use the Shooting Star?
Example 1
As shown in the above example, there was an uptrend, then the price started to face rejection around the 44500 level, and in the next candle, it held the low level made by the shooting star, but after that, the third candle broke the low level and started to trade below our shooting star candles low.
Here, our entry gets confirmed, and we can enter. The target level is around the old important level where price faced rejection and took support.
Example 2
As shown in the above example, the shooting star candlestick pattern appears at the top of the uptrend.
After that, on the next candle, close below that candle’s low, which activates our entry.
Then, we can see the price rallied until the previous support level, which was our target.
The Difference Between Shooting Star and Inverted Hammer
The shooting star and the inverted hammer both look the same.
Both have a long upper wick, which is twice the size of their body, and both have a tiny lower wick or sometimes even don’t have one.
The color of the candles doesn’t matter so it can be red or green.
Then, what is the difference between a shooting star and an inverted hammer candlestick pattern?
The difference is where it forms the location; that makes them different.
We trade inverted hammer in a downtrend when it forms on the support level or at the bottom, and we trade shooting star at the top of an uptrend or around the resistance level.
Benefits Of Using Shooting Star Candlestick Pattern
- The first benefit of using a shooting star candlestick pattern is its simple pattern to identify, and we have to trade on the top of the uptrend.
- The second benefit is we take confirmation before using this pattern, which means the possibility of failure here is very low if you trade the pattern correctly.
- The third benefit is that it has always yielded a more than 1:2 target, resulting in higher profits than the risks involved.
Limitations of using Shooting Star Candlestick Patterns
Limitations of Shooting Star Candlestick Patterns are that this pattern may not work well in a ranging market or a market that is not trending strongly.
The shooting star candlestick pattern is not a standalone trading strategy and should always be confirmed with other technical indicators or analysis tools.
Additionally, you need to be careful while using this pattern as the high made by the shooting star can work as resistance for the next few candles, and if the price starts to trade above this high, it means the pattern has failed.
Conclusion
The shooting star candlestick pattern is a bearish reversal pattern. When this pattern appears in an ongoing uptrend, it reverses the trend to a downtrend.
It has a bigger upper wick, mostly twice its body size. It has no lower wick or sometimes has a smaller wick.
This is just an inverted hammer candle called a shooting star. It got its name because it looks like a shooting star, and it’s located at the top of the uptrend.
It can be a red or green shooting star candlestick, but the color doesn’t matter in this pattern. The red color represents that sellers are dominating.
We need confirmation while trading this pattern. You should not only rely on this pattern for making trading decisions.
Frequently Asked Questions (FAQ)
Is Shooting Star a bullish candle?
No, a Shooting Star is not a bullish candlestick pattern. It is a bearish reversal candlestick pattern.
