SHOOTING STAR: Spotting Opportunities In Market Trend

Overview

For traders, a shooting star is not only about a cosmic event but also, it is about a potential turning point that would be revealed on the chart. As already Candlestick patterns have become quite popular among traders for trying to gain an advantage by being able to read the live price action as it forms. It is among one of the most popular patterns because it gives essential information.

In this blog, we will go on a journey of understanding shooting star pattern. What is it? How to identify it? And how you can use it in your trading journey for your own benefit. Let’s start rolling to get a better understanding of this chart pattern.

What Is A Shooting Star Pattern?

This Pattern is identified as a bearish reversal candlestick pattern. Which have a longer upper candle wick and little to almost no lower candle wick. It appears to have a small real body that closes near to the low of the session. It can be witnessed in various places in the price action. To know how to use it correctly refer to the limitations below.

How can a shooting star candlestick pattern be identified?

While looking for this pattern one must see a long upper wick in a candle and little to no lower wick in the same candle. In this pattern, the size of the body of the candlestick needs to be small showing that the price has collapsed back lower.

It is important for you to identify this pattern after an up-trend in price action rather than a down-trend because the shooting star can sometimes be confused with the inverted hammer candlestick. Both of these patterns almost look similar but the formation of these patterns occurs in different areas which sets them apart from each other.

What does a shooting star mean?

The occurrence of this pattern in price action can be witnessed when the bulls try to push the price higher but fail to do so because, by the end of the session, bears tend to send the price back lower by wiping away the gains.

Just like tug of war, where both the parties pull the rope in their direction to win. Here the rope is the price which moves up and down between bulls and bears.

The bearish rejection signals us that a potential reversal can soon be witnessed on the chart. That is why it is crucial to identify this pattern up at an up-trend or after the price has made a higher move. You need to see the higher prices getting rejected for a new Lower move.

 “Precision is the key to gaining the benefit of this pattern”

Trade with the Shooting Star

Once when you get a hang of how to find this pattern you can easily use simple trading strategies to enter trades.

Let’s discuss the two most common trading strategies that can be used with this pattern. By making an entry as soon as the candle has finished forming and by using confirmation. It is said to be a confirmation entry when you are looking to make sure that the pattern confirms itself. 

But in the matter of conservative traders, it is quite different. While using this pattern for their entry, they would wait for the price movement to go below the low of the candle and then to make an entry. Also, you can use a sell stop and try to do this automatically.

Shooting Star v/s Inverted Hammer

As they both look, almost similar traders tend to get confused between them. The inverted Hammer, and the shooting star both have long upper wicks and small real bodies near the low of the candle with little to no lower wicks.

Here, only the situation sets the difference. A shooting star occurs when the price moves higher in the uptrend. It marks a probable turning point in the lower direction, means signals a downtrend which is not the case with an inverted hammer.

An inverted hammer occurs in a downtrend and marks a probable turning point in the higher direction, which signals an uptrend. Trading with an inverted Hammer should be considered in the down-trend that occurs in the support area also known as the demand zone.

Also Read: Cup and Handle Pattern

What are the limitations of the shooting star?

A single candle influence is much less during a major uptrend price fluctuation in this pattern and might not matter much as the trend persists forward. That’s why confirmation is a must. However, after confirmation, there is no guarantee that the price will continue to fall. It might pick up in alignment with the longer-term uptrend.

Although it’s good to use this chart pattern for your own benefit, with its gaining popularity, one must be aware of the trapping. So to avoid trapping traders started to use technical analysis where they would only use this pattern in the resistance area also known as the supply zone because it will be a high probability Trade setup where chances of gaining profit are very much rather than trapping.

Conclusion

The shooting star pattern is one of the most prominent signals towards a downward reversal, where its structure is somewhat similar to an inverted hammer, but its indication and placement are quite different. Though it can help you navigate your trades. It is not a standalone signal for buying or selling. One should incorporate more than one form of technical analysis tool to dig out the gains from the trades.

FAQs

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