Most seasoned traders consider the shooting star to be a powerful price formation due to its effectiveness and reliability. It is also is one of the most common candlestick patterns in the market. The shooting star is a single-candle pattern of bearish nature.

It consists of a small body and a long upward wick. The shooting star signals that the current bullish trend is near its end and a reversal may take place soon. In combination with other indicators, this pattern can represent a sell trade opportunity. The Shooting Star Candlestick. In this article, we will show you the main elements of this pattern, how to spot it. Moreover, we will explain how you can trade it profitably and increase your odds of success. The shooting star has a short body due to the proximity between its open o , close c and low l price levels.

Anatomy of a Shooting Star. The left candle in the photo is green since the close is higher than open, while the right candle represents the opposite scenario. Based on the shape of a candle, a shooting star is a bearish pattern since the long wick is a sign of weakness on the side of the bulls. The upward momentum gets exhausted as the selling pressure grows.

A shooting star plays an essential part in the price action, as it signals an impending reversal. The bulls may have been building an upward motion for a long time and making gains, but the creation of a shooting star at the top of an uptrend sends a signal that this chapter of the story may end soon. As traders, we always search for ways to capitalize on big moves. That is why a shooting star is a crucial element of the price action, as it signals that a new trend may be starting soon.

As the shooting star pattern consists of a single candle, trading this formation is quite straightforward. As outlined earlier, a shooting star pattern occurs at the top of an uptrend as the bulls start to lose momentum. At one point, the price action creates a new short-term high, but the bulls fail to force a close in the upper part of the candle. In a short time frame, the price action creates two candles with long wicks that extend higher, which signals that the bulls are losing their momentum.

Finally, a clean shooting star candlestick is formed and then followed by a long bearish candle that confirms the reversal. The three lines in the chart below represent key levels in a trade:. Ultimately, the chart above shows how the trade evolved positively. We risked 75 pips to gain pips, which represents quite a good risk to reward ratio. As said earlier, you should be cautious and not try to trade all shooting stars you can see on a chart.

The reason we decided to trade this opportunity is that we had two additional signs that signaled an impending reversal. First, there was a long wick to the upside in one of the prior candles that sent a similar message. Although it looks similar to a shooting star, this candle is not classified as such we will address this question below.

Secondly, the next candle after the shooting star candle was a bearish candle that further validated our idea: the reversal had just started. It is imperative is to consult other technical indicators and do your homework as your capital is at risk here. Here is a list of tools you can use to confirm a trade idea:. As outlined above, a significant strength associated with the shooting star is its signal that a reversal may take place soon, as the uptrend is near its end.

It is considered to be a potent formation due to its effectiveness and reliability. On the other hand, as it is the case with all candlestick patterns, a shooting star issues a signal, not a trading signal. For this reason, always verify the validity of a signal by checking other technical indicators. This is especially the case with single-candle patterns since it is tough to predict future trends based on the shape of a single candle.

Also, it is useful to check other candles near the shooting star candle to assess additional confirmation of a reversal. Given that there are more than different candlestick patterns, it is no surprise that some of them look very similar. In this particular case, it is worth noting the difference between a shooting star and a hammer, an inverted hammer, and a gravestone Doji. A shooting star is a hammer pattern turned upside down. Both send the same message: a change in the price direction may start soon.

The big difference is that the former is a bearish reversal pattern, while the latter is a bullish reversal formation. A hammer takes place at the end of a downtrend, while a shooting star occurs at the end of an uptrend. An inverted hammer occurs at the bottom of the downtrend when the bears show the first signs of weakness and tiredness.

Like a hammer, an inverted hammer is a bullish reversal pattern that signals the growing presence of the bulls in the equation. For example, the price may consolidate in the area of the shooting star. If the price ultimately continues to rise, the uptrend is still intact and traders should favor long positions over selling or shorting.

In this example, the stock is rising in an overall uptrend. The uptrend accelerates just prior to the formation of a shooting star. 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.

If trading this pattern, the trader could sell any long positions they were in once the confirmation candle was in place. The inverted hammer and the shooting star look exactly the same. They both have long upper shadows and small real bodies near the low of the candle, with little or no lower shadow.

The difference is context. 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.

One candle isn't all that significant in a major uptrend. Prices are always gyrating, so the sellers taking control for part of one period—like in a shooting star—may not end up being significant at all. This is why confirmation is required. Selling must occur after the shooting star, although even with confirmation there is no guarantee the price will continue to fall, or how far.

After a brief decline, the price could keep advancing in alignment with the longer-term uptrend. Utilize stop losses when using candlesticks, so when they don't work out your risk is controlled. Also, consider using candlesticks in conjunction with other forms of analysis. A candlestick pattern may take on more significance if it occurs near a level that has been deemed important by other forms of technical analysis.

Advanced Technical Analysis Concepts. Technical Analysis. Technical Analysis Basic Education. Company News Markets News Cryptocurrency News Personal Finance News Economic News Government News. Your Money. Personal Finance.

Your Practice. Popular Courses. Technical Analysis Technical Analysis Basic Education. What Is a Shooting Star? Key Takeaways A shooting star occurs after an advance and indicates the price could start falling.

The formation is bearish because the price tried to rise significantly during the day, but then the sellers took over and pushed the price back down toward the open. Traders typically wait to see what the next candle period does following a shooting star.

If the price declines during the next period they may sell or short. If the price rises after a shooting star, the formation may have been a false signal or the candle is marking a potential resistance area around the price range of the candle. Article Sources. Investopedia requires writers to use primary sources to support their work.

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The Shooting Star Candlestick Pattern is a bearish reversal pattern. The candlestick comprises of one candle which has a long upper wick and little or no lower wick. A Shooting Star is a single candlestick pattern that is found in an uptrend. The candlestick can mark a top but is often retested. A Shooting Star is formed when price opens higher, trades much higher, then closes near its open.

This bearish reversal candle looks like the Inverted Hammer except that it is bearish. The Shooting Star appears in an uptrend and signifies a drop in price.

When the price advances and shows a sudden drop, it leaves behind a long upper wick. This upper wick should be half of the length of the Shooting Star. Also, the upper wick represents the buyers who were in a strong position during the day, but now they may be losing control because of the price drop. The candle after the Shooting Star is what confirms the pattern.

The following candle should be below the Shooting Star. Ideally, there is a gap between the confirmation candle and the Shooting Star. This helps in determining a price reversal. So, in this situation, we may look to go short. If the open, low, and closing prices are almost the same, you can see a shooting star formation that, often interpreted by traders as a sign for a bearish move. The pattern can appear regularly on the forex charts. After the price reversal, you can notice lower lows and lower highs.

In some situations, the price continues to rise after the appearance of the Shooting Star. Here we could wait for the price action and go long. The bullish version of the Shooting Star is the Inverted Hammer Candlestick Pattern and it looks similar.

Both of them have a long upper wick with a small or no lower wick. However, the Inverted Hammer emerges in a downtrend and signals the potential price rise, whereas the opposite is true for the Shooting Star. Once spotted, the Shooting Star pattern can give signals for going short and some traders may set the stop-loss near the recent swing high.

A conservative trader might wait for a while and enter the trade in the middle. This means a trader is looking for a shorter trade, possibly with the tighter stop-loss.

However, the pattern is not flawless and requires the use of other technical indicators to confirm the signals. Even though the Shooting Star is present, the prices continue to rise.

In this situation, you could use momentum oscillators like the Stochastics or RSI to determine the overbought level. In the chart above, you can notice that the Shooting Star is telling an overbought condition. Again, the momentum oscillators can help you outline a short trade. A trader could simply enter on the open of the next candle or, if the trader was more conservative and wanted to capture a better risk-to-reward ratio, trade the retest of the wick black dashed line.

Retests of the wick tend to occur when the wick is longer than normal. As the shooting star pattern comes close to a resistance level or a trend line, it can confirm the onset of a new bearish bias. It can act as a reasonably reliable pattern to identify a bearish reversal when it appears close to a resistance level.

As with any other candlestick pattern , it is an option to use the Shooting Star on multiple timeframe analysis. We could look for the Shooting Star on longer timeframes and determine entry points on shorter timeframes. But as we already mentioned, it may not be wise to rely solely on the Shooting Star for a forex trading strategy.

We could use other methods of technical analysis for confirmation. The Shooting Star Candlestick Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy. Many consider the Shooting Star a simple tool for helping to identify price reversals.

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Search for:. Table of Contents. The shooting star candle stick pattern is a beneficial technical analysis tool to notice a bearish divergence in the market. The shooting star indicator may be useful for traders gone short on a market looking for an exit, or traders looking for an entry point to go long. The Forex Geek. This site uses cookies to improve your user experience. ACCEPT Read More. Close Privacy Overview This website uses cookies to improve your experience while you navigate through the website.

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In any case these are just a few of the ways in which we could structure a short trade following the bearish shooting star candlestick. They both have long upper shadows and small real bodies near the low of the candle, with little or no lower shadow. The candle is formed by a long lower shadow coupled with a small real body. Where Can I Trade Commodities? Again, the momentum oscillators can help you outline a short trade. Essentially, that is the bar that acts as our entry confirmation signal.

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