In this strategy, we’ll only short a shooting star if the 14-period ADX is higher than 20. One often overlooked way of improving a trading strategy is with seasonality. In the market, there are many seasonal tendencies that can be quantified and used in a trading strategy.
Our maximum loss will be equal to the distance between the level we short HPQ and the level of the stop loss order. This way, if the price creates an unexpected bullish move caused by high volatility, we will be protected. The Shooting Star formation is considered less bearish, but nevertheless bearish when the open and low are roughly the same.
- It is not limited to a particular instrument as it is a function of trader’s sentiments and price action.
- A shooting star is a single-candlestick pattern that forms after an uptrend.
- In this case, we will employ the nine period simple moving average as the mechanism for trailing the price action and issuing our buy exit signal.
For dynamically-generated tables (such as a Stock or ETF Screener) where you see more than 1000 rows of data, the download will be limited to only the first 1000 records on the table. For other static pages (such as the Russell 3000 Components list) all rows will be downloaded. Unique to Barchart.com, data tables contain an option that allows you to see more data for the symbol without leaving the page. Click the “+” icon in the first column (on the left) to view more data for the selected symbol.
Psychology of the Pattern
To exit the trade, we’ll use a simple time exit, and get out of the trade after 5 bars. Now, the trade is protected against rapid price moves contrary to our trade. As you see, the candle has a small body located in the lower part of the pattern.
- Key takeaways A morning star pattern is a bullish 3-bar reversal candlestick patternIt starts with a tall red candle,…
- At some point during the uptrend, the momentum behind price action began to wane.
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- If this is followed by a Bearish Engulfing pattern (where a large bearish candlestick engulfs the previous bullish candlestick), it may further support the reversal signal.
However, do note that this is still one signal generated by one of hundreds of technical indicators, you can explore different charts on your stock trading account. At times, it is possible for a financial asset to continue rising even after a shooting star pattern forms. However, if you use the strategies mentioned above, you will be at a good position to avoid risking too much money. When a shooting star candlestick forms at the resistance zone, then open a sell order instantly.
How to trade the shooting star candlestick pattern
It is worth noting that a shooting star pattern is not always a sign that a financial asset will reverse and start a new bearish trend. In a shooting star pattern, the long upper shadow is usually a sign of people who bought early and are now in a loss-making shooting star candlestick pattern position since the price slipped back to the opening. When it happens, it tells you that the currency pair or asset may soon turn around in a bearish manner. Still, like all other candlestick patterns, it should be used using a combination of other tools.
What is the Shooting Star Candlestick Pattern?
Switch the View to “Weekly” to see symbols where the pattern will appear on a Weekly chart. This page provides a list of stocks where a specific Candlestick pattern has been detected. If the RSI is high, then the market is overbought, and more likely to turn around soon. The general interpretation is that a market is overbought if the RSI indicator is above 30. The reason behind this is that mean-reverting markets like equities are more likely to revert the more extreme movements they’ve produced. One good way to measure this is with the average true range indicator.
Since it’s a bearish reversal signal, a true shooting star candlestick pattern can only occur after an uptrend. Trading it from a consolidating (flat or sideways) market or even a tight range will not work. In such a case, it will also generate a trend reversal signal after the formation of a candlestick during the downtrend. But the name of the shooting star candlestick will change to inverted hammer candlestick. The sense of a candlestick pattern can be changed just by the change of location on the candlestick chart.
How to find a shooting star candlestick pattern?
The long upper shadow shows the buyers who bought during the day but are now in a losing position because the price dropped back to the open. This candlestick formation is considered less bearish, but bearish when the open and low are roughly similar. The bears were able to counteract the bulls, but were not able to bring the price back to the price at the open. 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. However, caution would have to be used because the close of the Shooting Star rested right at the uptrend support line for Cisco Systems. Generally speaking though, a trader would wait for a confirmation candle before entering.
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 the Shooting Star candlestick pattern, what a Shooting Star is, what the Shooting Star tells you, etc.
The daily timeframe chart offers the best combination of reliability and frequency as it relates to the shooting star candlestick formation. You can observe the candle has a long upper shadow indicating the failed intraday rally. The body color is not important, but green or white bodies indicate stronger selling pressure. A shooting star indicates the market tested higher levels but now it can face strong resistance and selling pressure.
The stop loss on the trade will be set at the high of the price bar that breaks below the trendline. Essentially, that is the bar that acts as our entry confirmation signal. Finally, we will need a way to monitor the price action if it moves in our favor to the downside, and exit the trade when the weight of evidence is pointing to an upside reversal. In this case, we will employ the nine period simple moving average as the mechanism for trailing the price action and issuing our buy exit signal. More specifically, when the price crosses above and closes above this nine period simple moving average line, we will exit the position completely. Notice how the price opens near the lower one third of the range, and then the bulls push the prices higher, which is represented by the upper shadow of the shooting star pattern.
Some of the filters that I use to qualify a good shooting star make taking the entry completely different than the standard method. In my experience, these filters have drastically improved my strike rate with the shooting star candlestick pattern. Shooting star and hanging man both are bearish reversal candlestick patterns.
As you see, the shooting star candle pattern gives us an indication that the trend might reverse. This creates a nice premise to short HP right in the beginning of an emerging bearish trend. Despite the small correction on the way down, the shooting star reaches the target of three times the size of the candlestick. Suddenly, a shooting star candlestick appears, which is marked with the green circle on the chart. We have a small candle body and a big upper candlewick, which confirms the shape of the pattern. You should always use a stop-loss order when trading the shooting star candle pattern.
One of the reasons for this is the unique structure – a small body with a high upper candlewick. The shooting star candlestick strategy is a very easy and effective method to trade the financial markets. You can trade stocks, forex, currencies, commodities, futures, and even cryptocurrencies across various times. The shooting star is a single candlestick pattern, and the evening star consists of three candlesticks. We need confirmation while shooting star patterns, but when trading evening star patterns, we don’t need confirmation and can directly enter the pattern.