Shooting Star Pattern Definition, Uses, Interpretations, and Examples

An inverted hammer that forms during an uptrend usually has a long lower shadow with little or no upper shadow. This formation shows exhaustion among bulls after several days of sideways action following strong upward momentum. It tells you when too many buyers entered positions too quickly at higher prices without letting sufficient time pass for bears to step in and push prices back down. While there is more overlap than differences between these two patterns, they behave similarly.

shooting star pattern

Looking at these kinds of candlestick reversal patterns, many traders will jump in to sell or short. The advantages and disadvantages of e payment system is also called a bearish engulfing signal or a bearish reversal candlestick pattern. When you look at it in real time action, an investor may lose money if they enter at that point and time.

Inverted Hammer & Shooting Star Candlestick Pattern

It gives the trader the safety net if the market tends to move in the negative direction. Hammer and Shooting Star This indicator identifies Hammer and Shooting Star candles and marks them with a respective label. It uses a set of predefined fibonacci levels to measure the size of the body in comparison to the overall size of the candle. You can change the fibonacci level according to your preferences. It is important to note that the candle offers strong reversal signals but there are chances that the market does not play out as expected. Therefore, you must consider other tools and indicators before you decide to enter a trade.

shooting star pattern

Instead if price rises after shooting star formation, the pattern might be a false signal or price might have faced temporary resistance around that price level. The price range of the shooting star may act as resistance due to which the price might consolidate around the range of the shooting star candle. In case price rises after forming a shooting star candle, then it might create a range or price may consolidate in the area of the shooting star. Instead if price continues to rise, traders may consider the uptrend is still intact to go long. When using the shooting star candlestick, you need to use stop losses, so when they don’t work out, your risk is controlled. This pattern is said to confirm the new bearish bias if the pattern is seen near the resistance level or trend line.

All it means is that the uptrend might not continue for a long time, and the prices are most likely to fall. The next candle that appears after the shooting star confirms whether it is reliable or not. You have to note that the high and close of the confirmation candle should be below the high and close of the previous candle. Additionally, it should move downwards with heavy volume.

The buyers tend to be represented by the long upper shadow who had bought the securities in the opening but now are in an extended position as the price dropped back to the opening price. It is the main reason why the shooting star formation is often thought to be a possible sign of the bearish reversal. These candlesticks are also known as indicators as they tell the traders when to enter or exit the market.

How to Identify Shooting Star candlestick pattern?

When you spot this candlestick at the top of an uptrend, it might not always result in a possible reversal. Therefore, it is better not to trust the signals blindly. Shooting stars signal the fact that the price has reached its maximum and there is a possibility of a bearish reversal.

  • During an up trend, the market keeps making higher highs and higher lows.
  • In the case of simple confirmation entry, selling happens only at the close of the market at a point below the low of a shooting star.
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Well, most traders, post confirmation of a shooting star trend, exit their long positions and a few actually go short on that stock for a short period. This tip is a value for money for all i.e whether one can see the trading terminal or not or is dealing through a broker on phone at BSE, NSE or in F&O. Thus you are on a correct path of making money every day with single daily accurate tip.

Bullish Engulfing Candlestick Pattern

Usually, the shooting star candlestick doesn’t necessarily define short term trade, and for further technical justification, confirmation is a must. Shooting stars are among the most prominent candlestick patterns that signal towards a downward reversal. While its structure is the same as the inverted hammer, its indication and placement are the quite opposite. Utilize stop losses when using candlesticks, so when they don’t work out your risk is controlled.

shooting star pattern

But, you need to know that even after the confirmation there is no such guarantee that price will continue to fall. It is easy to spot potential shooting star pattern if you understand the description given above. The only difference between them is the inverted hammer indicates a bullish market.

The dynamic nature of the market means one candlestick may be insufficient evidence of an oncoming bearish victory; it requires further confirmation. The long upper shadow represents the buyers who bought during the day and are now losing due to the price dropping. Investments in securities market are subject to market risk, read all the related documents carefully before investing. Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge. The difference is that the shooting star occurs after a price rise and the inverted hammer occurs after a price fall.

Interpretation of the Shooting Star Pattern

I decided to republish this one without the trend filter and with all the major symbols active. Due to 15 different candlestick formations in this one script, it will be difficult to turn off the last few due to screen size. You can turn off individual patterns on the settings screen. If you have any doubts regarding this candlestick or the stock market, feel free to connect with us. A shooting star forms when there is a significant price advance as the candle opens, but eventually, the prices start to fall and the candle closes near the low.

We’ll be coming with a lot of strategies on candlestick patterns which will help to identify trade setups easily. Interestingly, you can use this setup to trade stocks, equity indices, commodities or even currencies. Further, you can use any instrument to trade it i.e. cash , futures or options.

Three White Soldiers & Three Black Crows: How to Trade These Candlestick Patterns?

Traders have to be careful about one thing, that they shouldn’t confuse the shooting star pattern with inverted hammer candlestick as both of them have a longer upper wick and tiny body. Shooting stars are among the most prominent candlesticks among the traders. It is indicative of a bearish reversal pattern in the near future. It is generally formed in special circumstances when a stock opens at normal prices but tends to increase significantly during the day but the price is rejected. The long upper shadow represents the buyers who bought during the day but are now in a losing position because the price dropped back to the open.

It’s considered as most effective when it forms after a series of bullish candles in an uptrend. Traders generally wait to see how the next candle following a shooting star is formed. The next day starts with a gap up opening and continues moving higher when more bulls participate.

They are useful in not only understanding and visualising trends and current behaviour, but also in predicting potential market trends and direction. When the trading session opens, a stock opens pretty high and stays up all day long but then, comes down to its opening price when the trading session is about to be closed for the day. This candlestick pattern formation happens when the price of a security rises higher than its initial price, but reduces to value even lower than its opening price at the close of the day. We can see the GREEN line that’s where we got the confirmation of an inverted hammer pattern at the resistance zone. Once the price of the inverted hammer pattern is broken, our entry is triggered. Shooting star formation at the top of an uptrend indicates a potential price drop or reversal.

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