In this scenario, the shooting star occurs after a significant price advance when Gold’s price retested its previous high at $1358, signalling a trend reversal. The shooting shooting star candlestick pattern star’s body should be positioned near the bottom of the candle with little to no lower shadow (buying tail). The long upper shadow should have tapped the resistance level and should be at least twice the length of the shooting star’s body. The appearance of the setup suggests that the price opened near its low and rallied significantly during the trading session but ultimately closed near its opening price. This pattern indicates sellers regained control after a brief period of bullishness. Hanging man candlesticks are found near resistance levels or at the top of uptrends.
To tell a Shooting Star and an Inverted Hammer apart, you need to identify the current trend. At the same time, the upper wick of a Shooting Star candle is really long, at least twice the length of its body. The lower wick is barely visible, sometimes even non-existent, so the most recognizable part of this pattern is its long upper wick. Let’s say XYZ Ltd. has been on a strong rally, climbing from ₹850 to ₹1,050 over several sessions.
Disadvantages of Shooting Star Candlestick Pattern
The shooting star is a highly versatile candlestick pattern in terms of how you can approach trading it. Depending on the trader’s risk appetite and personal strategies, the entry conditions will vary. In this section, we’ll go over the very basics of how you can enter a short trade using the shooting star. It is a bearish pattern, indicating that an uptrend may be losing momentum and that a reversal to the downside could be imminent.
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It is made up of a large candle moving in the direction of current trend, a doji, and another large candle that moves in the opposite direction of the first (and trend). Doji star patterns are one of the most well-known candlestick patterns because they are easily identified and give a clear signal. The hanging man consists of just a single candle at the peak of an uptrend, featuring a small body with a long lower wick and a small or non-existent upper wick. Like the evening star, it suggests weakening buying pressure and sellers stepping in, but it lacks a clear multi-candle structure and typically requires greater confirmation.
Inverted Hammer Shooting Star Candlestick
The candle should also have a relatively small or non-existent lower shadow. The open, high, and close prices should be relatively close together, with the high being very close to the open. As shown in the above example, the shooting star candlestick pattern appears at the top of the uptrend. The price chart above shows an increase in prices from the date May 14. The advance is seen to be rapid until the formation of the shooting star in early June.
Any trader or investor must follow certain steps while taking trade decisions based on the shooting star candlestick pattern. Doji Candlesticks are a category of technical indicator patterns that can be either bullish or bearish. The Gravestone Doji is a bearish pattern that can indicate a reversal of a price uptrend and the start of a downtrend.
Variations like the Spinning Top or Long-Legged Doji add longer wicks, emphasizing confusion and volatility. The Dragonfly Doji, with its long lower shadow and no upper wick, often signals potential reversal after heavy selling. Indecision patterns warn traders that neither side is firmly in control. Continuation patterns help traders recognize when a trend is consolidating rather than reversing — valuable insight for managing open positions. Bullish reversal patterns appear at the end of downtrends, signaling potential exhaustion of selling pressure and a return of buyers.
How to Identify a Shooting Star Candlestick Pattern?
- The shooting star is a bearish reversal pattern, signaling a downtrend.
- The upper wick of the successive candle should be shorter than the high of the Shooting Star.
- Taking the above chart into account, there are several steps you need to follow in order to effectively identify and trade the shooting star candlestick pattern.
- If the shooting star is accompanied by an increase in trading volume, this can improve the reliability of the reversal signal.
It is advisable to use a stop-loss order to limit potential losses and a take-profit order to secure gains. The success rate of a Doji Star depends on confirmation by subsequent candlesticks and the overall market situation. It is advisable to consider trading volumes and other indicators to increase the reliability of the signal.
The evening star pattern offers traders a structured way to identify potential turning points in the market. Its three-candle formation makes it popular among those seeking greater confirmation than single-candle patterns. In the example above, we see a slight rally in AUD/USD in a broader downtrend (off-screen). Price initially pierces the upper Bollinger Band, with slight rejections visible in the upper wicks. At this point, the pattern forms, with confirmation coming from relatively weak candles afterwards. Price then closes through the midline of the Bollinger Bands, providing full confirmation of a bearish reversal.
- The candle after the shooting star gaps down and then moves lower on heavy volume.
- The shooting star candlestick formation confirms an upcoming reversal in the price movement where the security price will continue to fall.
- It provides traders a clear visual representation of market sentiment shifting from bullish to bearish.
- The behavior of subsequent candlesticks can help traders gauge the strength of the falling star candlestick potential reversal suggested by the shooting star.
What does a Shooting Star pattern mean?
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. A price increase that immediately follows a shooting star could also imply the formation of a resistance area around the candlestick. A resistance area refers to a point on the price chart that a security experiences difficulty in breaking and moving above in a specified time frame. Secondly, investors and traders must pay attention to the rapid price drop that occurs later in the day. As seen in the image above, in a shooting star candlestick pattern, the price starts to drop in the latter half of the day after a significant advance.
Where to Place Your Stop Loss (The Pattern’s Extreme)
A bullish Doji Star candlestick, often referred to as Morning Star Doji, appears after a downtrend and indicates a potential start of an uptrend. A bearish Doji Star candlestick, also known as Evening Star Doji, forms after an uptrend and signals a possible decline in prices. For a Two-CandleShooting Star pattern to be considered valid, thepattern should appear after an uptrend indicating thepossibility of a reversal. Moreover, thebearish candlemust have a small real body with a long upper wick. In this pattern, thefirst candleis a bullish (green) shooting star candlestick representing thecontinuation of the upward trend.
A stop-loss can be placed just above the high of the bearish candle. At Stolo Technologies Pvt Ltd, we understand the pulse of the Indian market and the aspirations of modern traders. The evening star suggests a gradual transition from bullish to bearish sentiment, with the red candle confirming the sellers’ dominance. The second red candle must close at least halfway into the green candle’s body for the pattern to be considered valid. You’re much better off building your strategy around other tools then using reversal patterns as an additional point of confirmation.