The shooting star candlestick is visually indistinguishable from the inverted hammer candlestick. However, the key difference lies in where they are formed – the shooting star is formed only after the price has moved up, while the inverted hammer forms after the price has moved down. The shooting star candlestick can be treated as a short entry signal the moment it forms. A trader may prefer this approach if they have a bigger risk appetite, and don’t mind the potential for false signals as the shooting star offers a high risk-to-reward ratio.
The currency pair is trending at 2.5, with the current price top at 4. As you are monitoring the market, the currency pair makes a new price high at 5.5 right before the market closes at 4.2, higher than the previous day’s close. You decide to enter your first trade at this point and place a long order. The next day, the market opens at 4.3, which is again higher than the previous day’s close and trades between 4.3 and 4.6 the entire day, making a brand new high of 6 and no lows. You decide to exit your first order at 5.5, which was also the previous day’s high and wait until the market forms a new trend. At this point, the selling pressures on the market increase as more and more traders like you exit the trade to benefit from the price increase.
Types of Shooting Star Candlestick Pattern
Shooting stars and dojis are not exactly similar in terms of appearance either. In terms of their bodies, shooting stars commonly have a short body with a long upper wick and a short or no lower wick. Doji, on the other hand, has a body that is smaller than that of a shooting star and long upper and lower wicks.
- Traders might question whether the shadow is truly long enough, if the body is small enough, or if the preceding price increase is significant enough.
- The classic shooting star does not have a lower shadow or is too short.
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- The hanging man suggests that selling pressure is starting to outweigh buying interest.
- When this pattern appears after an uptrend, it’s a signal to consider selling or shorting the security.
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A candlestick pattern may take on more significance if it occurs near a level deemed important by other forms of technical analysis. The shooting star shows the price opened and went higher (upper shadow), then reversed and closed down near the open. If the following day, the stock closed lower, this helps to confirm the pattern.
Steps For how to use the Shooting Star or Hammer candle to buy/sell stocks
In a shooting star candlestick pattern, the price advances considerably after the market opening. The sharp price increase is indicative of the existence of a buying pressure that has been present for the past bullish period. As the number of buyers increases the wick of the candlestick gets longer. Shooting star candlestick patterns mark the end of an uptrend and signal an upcoming bearish trend. The shooting star candlestick pattern is a bearish candlestick pattern, therefore it indicates us to sell our position or to open a short position. It must appear after an uptrend and typically marks the end of such uptrend.
The shooting star and gravestone doji are both bearish reversal patterns. The shooting star features a small body at the lower end of the candlestick with a long upper shadow, signifying a failed rally. Let’s consider a live market example of a shooting star in the stock market to illustrate the concept. A trader analyses the Meta stock chart on the TickTrader platform by FXOpen and spots a shooting star stock pattern after an extended uptrend. Upon confirmation, they decide to enter a short trade, setting their take-profit target at a significant support level and placing a stop loss above the formation’s high.
✔ the footprint chart analysis, where bright green clusters highlight levels where impulsive buyers became trapped. The chart below shows the BNB/USDT market, data from Binance Futures. In this case, the pattern we are interested in formed as the price attempted to break through the psychological level of $600 per 1 BNB. However, the following downward move lacked strength, and buyers pushed through, breaking the 69.30 level, where two Shooting Stars had formed.
Since the sellers weren’t able to close the price any lower, this is a good indication that everybody who wants to sell has already sold. When the price is rising, the formation of a Hanging Man indicates that sellers are beginning to outnumber buyers. A typical example of confirmation would be to wait for a white candlestick to close above the open to the right side of the Hammer. Both have cute little bodies (black or white), long lower shadows, and short or absent upper shadows. The price target for the shooting star is equal to the size of the pattern (the length of the candle). Once you install the platform, you will automatically get the free START plan, which includes cryptocurrency trading and basic features.
Once identified, particularly after an uptrend, it’s prudent to wait for additional confirmation, such as a bearish follow-up candlestick or a break below a support area. Setting a stop loss just above the Shooting Star’s high can be a wise move. However, other indicators should be used in conjunction with the Shooting Star candlestick pattern to determine potential sell signals. All ranks are out of 103 candlestick patterns with the top performer ranking 1. “Best” means the highest rated of the four combinations of bull/bear market, up/down breakouts.
A shooting star is a candlestick pattern that consists of two candles and usually forms at the top. This candlestick pattern is particularly effective when it appears after a series of bullish candlesticks, suggesting that the upward momentum is losing strength. The three main advantages of shooting star candlesticks are listed below. After a brief decline, the price could keep advancing in alignment with the longer-term uptrend. They both have long upper shadows and small real bodies near the low of the candle, with little or no lower shadow.
- Further on the price chart, a hanging man reversal pattern appears, which warns market participants that the price has reached the top and could reverse soon.
- The color of the patterns does not matter; they can be either bearish or bullish.
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- However, traders should be aware of each market’s unique characteristics and adjust their strategies accordingly.
The long wick of the shooting star stands for the sellers who took over the buyers over the progress of the day. The shooting star candlestick pattern is identified by a bearish candlestick with a significant upper shadow, minimal or no lower shadow, and a small real body near the period’s low. This pattern typically emerges after a period of upward movement in prices. Specifically, it occurs when a security opens, experiences substantial upward momentum, but ultimately closes near its opening price. Another disadvantage of using shoot star candlesticks is that they cannot be used in the isolation.
An opening gap following the appearance of a Shooting Star improves performance. The Hammer and Hanging Man look exactly alike but have totally different meanings depending on past price action. There is no more efficient way of doing that than in a trading simulator with a realistic trading environment. Now, the trade is protected against rapid price moves contrary to our trade.
Candlestick patterns are all patterns related to the formation of the candlesticks. A candlestick shows the price movement of any given falling star candlestick security/asset in any given timeframe. E.g. if you have chosen the weekly chart as your timeframe, one candlestick represents the price movement of one week for your selected pair. While the body shows the opening and closing prices of the given timeframe, the wick shows us where the price was within the timeframe.
The red body signifies that the opening price is greater than the closing price. The shooting star candlestick is considered one of the most reliable candlestick patterns. The accuracy of shooting star candlestick patterns varies depending on the candlestick patterns that follow the shooting star candlestick. The trend is confirmed to be a bearish trend only if the candlestick pattern that follows a shooting star depicts a price decline. Sometimes the candlestick pattern that follows a shooting star pattern shows a price increase.