Shooting Star Candlestick Pattern: Meaning, Psychology & How to Use
Wondering how the shooting star candlestick pattern appears on the chart? Learn with examples, key features, psychology behind it with and practical tips.
Table of Contents
Candlestick patterns are like the heartbeat of price representation on a chart. They help traders quickly understand how prices move, supply and demand changes, and trend shifts.
So that traders can identify potential reversals or continuations. They provide your trading journey a direction, timing, and discipline. A shooting star is one such pattern that tells you good entries and exits.
In this blog, we will guide you to the shooting star pattern how to spot, interpret, and use it with all the tips and mistakes.
What is a Shooting Star?
A shooting star is a single-candlestick bearish reversal pattern that appears after an uptrend. It has a small real body near the low of the candle, a long upper wick, and little or no lower wick.
The long upper wick shows that buyers pushed price up but sellers forced it back down before the close, indicating rejection of higher prices. It ultimately tells the trader that the bullish trend is all set to end and the prices are all set to start moving in a downward direction.
Key features
Want to know how to spot a shooting star on the chart? Here are the things to watch:
Trend: The shooting star pattern after an uptrend or bullish leg.
Body: It has a small real body located near the candle’s low.
Wicks: It has one long upper wick that shows a failed attempt to sustain higher prices. It’s typically at least two to three times the body length. While a no lower wick.
Psychology behind the Bearish Shooting Star
The shooting star candle formation occurs during the ongoing battle between bulls and bears. On the one hand, Buyers attempt to push the price higher during the session, creating the long upper wick.
But somehow, sellers have regained control and pushed the price back toward the open. It suggests exhaustion among buyers and growing interest from sellers. Also, its appearance on the chart pattern increases the seller’s contribution in the market.
Shooting Start Pattern Example
Suppose EUR/USD is in a short swing up from 1.0800 to 1.0950. On the next daily candle, price gaps slightly up and prints a candle with high 1.1000, low 1.0920, open 1.0985, close 1.0930, giving a small body near the low and a 70-pip upper wick.
Volume on that day is above average, confirming the pattern. That candle is a shooting star at/near the 1.1000 resistance area. It means that the buyers tried to push to 1.1000, but sellers stepped in.
A trader who has identified the pattern could use a short entry trigger below the candle’s low 1.0920, place a stop-loss above the wick 1.1010, and an initial target near the recent support 1.0800. If the trader’s analysis and interpretation prove right, the trading will end up making good money.
How to interpret and trade the shooting star
Identify the trend:
As we have studied, the pattern appears during a bullish trend; look for an uptrend.
Confirm the Pattern:
Once you have identified a candle that has a small body near the low of a bullish trend with a long upper shadow and negligible lower shadow.
Check the Strength of the Pattern:
Shooting stars formed at resistance levels, previous highs, Fibonacci levels, round numbers, or trendlines are stronger. So trade such patterns that appear on these levels.
Volume & confirmation:
Check volume to confirm the shooting star pattern. Higher than average volume on the shooting star or bearish follow-through improves reliability.
Plan Trades:
You can either wait for the price to break below the shooting star’s low to enter, or you may enter near the market close of the shooting star candle. Also, for planning an exit, you can follow your risk-to-reward ratio like 1:2 or 1:3.
Mistakes Traders Make While Shooting Star Trading
Trading without Clear Pattern Formation:
There are many patterns that looks like a shooting star. Trading the candle without a clear formation is a bad idea.
Trading Without Confirmation:
When trading with technical analysis indicators, or even charting indicators, you generate false signals.
Taking Trade Decision Solely Based on the Pattern:
The Shooting star pattern can give a false interpretation during high volatility and sudden market condition changes. And most traders enter trade only based on the pattern.
Effective Tips to Use Shooting Star
- Analyze multiple time frame charts to check the strength of the shooting tar pattern.
- Use indicators such as RSI divergence, bearish MACD crossover to confirm the pattern interpretation.
- Avoid trading a shooting star during highly volatile and high-impact event releases.
- Watch volume for effectively interpreting the pattern and checking its strength.
- Trade shooting star when it is formed at resistance, prior highs, or supply zones.
Wrapping Up: How reliable is the shooting star pattern?
The shooting star is a useful bearish reversal pattern, but the reversal is not guaranteed. Its reliability depends on three things: context, confirmation, and proper risk management.
On higher timeframes and with volume confirmation, its hit-rate and risk-reward profile improve. Also, the pattern alone it’s not reliable; using it in combination with an indicator and volume analysis is the best way to increase the reliability.
Want to test your understanding of shooting star? Open a demo account with us and trade based on candlesticks to evaluate your knowledge.
FAQs
No, they look similar, but a shooting star appears after an uptrend and signals bearish reversal, while an inverted hammer appears after a downtrend and signals potential bullish reversal.
Waiting for confirmation reduces the chances of false signals and is recommended for most traders.
For trading candlesticks, higher timeframes, or 4-hour, are generally more reliable.
Yes. Indicators like RSI, Bollinger Bands, or volume can improve the efficiency of the shooting star.
Use a risk-reward plan or refer to the height of the wick for setting trade targets.
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