Shooting Star Candlestick Pattern Pinbar Guide

An inverted hammer occurs after a price decline and marks a potential turning point higher. The difference between the patterns is that the body of the hanging man is at the top of the price range, while the body of the shooting star is at the bottom of the price range. The hangman has a long lower wick and the shooting star has a long upper wick.

It is a popular reversal candlestick pattern that occurs frequently in technical analysis and is simple and easy to identify. A shooting star candlestick is a bearish reversal pattern that appears in an uptrend and is formed by one candle. It consists of a small real body, a long upper shadow, and little or no lower shadow. The small real body indicates that the security closed near its opening price, and the long upper shadow indicates that buyers tried to push the price up during the period but ultimately failed.

Candlestick Pattern

Resistance, like price, is a leading indicator, so that’s a great place to start when trading bearish candlestick patterns. However, most new traders (and many experienced traders for that matter), tend to see support and resistance levels everywhere. For this reason, it is important to always cross-check the signal that a shooting star generates with other indicators, or other candlestick patterns. For instance, in the vicinity of a shooting star there may be other formations that signal the reversal or indecision.

The appearance of a pattern at the top after the bulls’ attempt to break out the resistance level is a stronger signal for a bearish market reversal than a shooting star in an uptrend. However, the formation of a shooting star pattern on the rise may indicate an imminent short-term correction. It is often questioned about the difference between a shooting star formation on a forex pair, stock or commodity.

Take profits at key resistance levels:

Because of being a single candle reversal structure, caution is essential. While a shooting star occurs after an uptrend, an inverted hammer forms after a downtrend. Both are reversal patterns, which means that an inverted hammer signals a positive reversal, while a shooting star, as we’ve learned, signals a negative reversal. The shooting star reversal candlestick boasts a success shooting star candlestick rate of about 69% when predicting bearish reversals from an uptrend. However, the low success rate indicates it cannot be relied on its own to provide accurate reversal signals. Therefore, it is essential to use other indicators and candlestick formations to confirm whether a reversal is about to occur instead of basing all trading decisions on the single candlestick.

The shooting star candle, despite how effective it is, a trader needs to see the pattern completed or confirm this pattern before opening a short position. A bearish candle below the high of the shooting star candle confirms a bearish trend reversal, and a trader could look to open a short or sell position. The major difference between the inverted hammer and the shooting star pattern is that the inverted hammer appears at the end of a bearish trend signaling a change to an uptrend. In contrast, the shooting star is seen at the end of an uptrend signaling a potential bearish price reversal.

Shooting Star Bearish Mean Reversion Trade Setup

In theory, this means that we’ll get more false signals, but the increased number of trades could still mean that we make more money. In this last part of the article, we wanted to share a couple of trading strategies that use the shooting star pattern. Typically, the impact of low versus high volatility depends a lot on the market and timeframe. You’ll find that two trading strategies even within the same market could work differently with regards to volatility levels. The best way to ascertain what works is with backtesting, where you use historical data to gauge the effectiveness of different filters. As the market continues in the direction of the uptrend, the market sentiment is bullish.

When it comes to ascertaining bearish reversals, overbought conditions are of utmost importance. The shooting star pattern appearing as soon as the RSI moves above the 70 levels and into overbought territories should be a warning sign of potential price reversals. It is more effective when it appears after three or more consecutive rising candles that form higher highs. However, it may also occur during periods of rising prices even if the recent candles were bearish. The appearance of the shooting star candlestick signifies price has topped and is likely to correct and start moving lower. The Shooting Star pattern is considered a bearish candlestick pattern as it occurs at the top of an uptrend and is typically followed by the price retreating lower.

How to Interpret Shooting Star Candlestick Patterns

You can try your hand at spotting the shooting star pattern along with other technical indicators using the Metatrader 5 trading platform. It is important to note that this type of candlestick formation must appear during an uptrend to validate a shooting star candlestick pattern and its bearish reversal significance. As this occurred in an uptrend the selling pressure is seen as a potential reversal sign. After encountering this pattern traders often check for a lower open on the next period before considering the sell-signal valid.

• We have a small candle body and a big upper candlewick, which confirms the shape of the pattern.
• After determining the top and the pattern itself, it is necessary to wait for confirmation of a trend reversal.
• For this reason, a shooting star candlestick pattern is a very powerful formation.
• Further, it is reasonably reliable in identifying a bearish reversal – especially if it appears near a resistance level.
• While this might seem easy to see with plain eye-sight, we also want to use a quantifiable condition.

Our advice is to consult other indicators, like Fibonacci, trend lines, or moving averages, and decide whether to exit a positive trade or not. Therefore, the shooting star’s key strength is its ability to generate a reversal signal. Of course, it may not always be right, but it is considered to be effective and reliable. However, please note that this is still one signal generated by one of hundreds of technical indicators. No, the shooting star pattern indicates only a bearish trend, but can also form in an uptrend.

Keep reading to shoot for the stars and learn the best trading strategies for this one-bar pattern. The more pieces of evidence you gather, the more will be the reversal chance. In this strategy, we’ll only short a shooting star if the 14-period ADX is higher than 20. Since the moving average is below the entry point, we’ll use that as a profit target.

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Caterina