Trading is a specific field of human activity. To succeed, you need to possess a fairly large amount of knowledge and skills, including the ability to analyze trading patterns. One of the most frequently used models is the Shooting Star Candlestick. Let's look closer at its features and what market changes it indicates.
Understanding Shooting Star Candlestick Patterns
The Shooting Star Candle is a price pattern. The model is formed when the price of an asset rises and then falls. As a result, at the time of closing, the price is the same or close to the one at the time of opening. This pattern signals a trader about a possible market reversal and a transition to a bearish trend.
The Shooting Star Candlestick pattern is convenient for traders due to the following advantages:
- Ease of detection;
- Simple analysis;
- Usefulness in researching market trends.
How to Identify Shooting Star Patterns?
The Shooting Star Candlestick indicates a situation on the market when the price of an asset rises after the opening but then falls. As a result, at the close of trading, the cost of an asset is close to its value at the opening of the trading session.
The Shooting Star Chart Pattern meets the following criteria:
- The chart high is significantly higher than the closing price of the previous candle;
- The opening of the candlestick is near the close of the previous chart;
- The pattern closes below the local high formed at the beginning of the current period.
Anatomy of a Shooting Star Candlestick
The Shooting Star Candle looks specific. It has a small body and a long upper shadow, which means buying pressure and, consequently, an increase in the asset price. This part of the chart should be at least bigger than the entire length of the candlestick body.
The lower shadow of the chart is short. It indicates a price drop. Sometimes, the shadows of a Shooting Star Candlestick are also called the wick or tail. Some models do not have a lower tail. However, they are quite rare.
Differences Between the Shooting Star and the Inverted Hammer
Traders use many candlestick patterns. Some of them are interrelated in particular ways, such as the Shooting Star Candle and the Inverted Hammer. When analyzing these two trading patterns, it is worth paying attention to the context in which they work. The Shooting Star Candlestick Pattern appears at the end of an upward price movement. It indicates the beginning of a trend reversal to a downward trend. As for the Inverted Hammer, it shows the opposite trend. The Pattern is formed when the closing price is higher than the opening one. The buying pressure pushes it up, which is indicated by the long shadow.
Validating Shooting Star Patterns: Supplementary Indicators and Signals
Experienced traders know that Shooting Star Candlesticks indicate the beginning of a bearish trend in the market, and thus, prices should be expected to start declining. However, to be sure of the correctness of judgment, it is worth analyzing two or three consecutive candlestick patterns that appear after the Shooting Star and not forgetting to use other indicators.
Historical data will also be useful for a deeper and more accurate analysis. The more of it a trader can process, the better. However, the best Forex robots will be the most effective in this aspect. Their advantage in data analysis compared to humans is obvious. These programs will help investigate the market situation in more detail.
Interpretation of Shooting Star Patterns
To understand Shooting Star Candlestick meaning, it is important to consider the following aspects.
- Pay attention to the price increase after the market opens. This indicates the buying pressure that existed during the previous growth period. The greater the number of buyers, the longer the wick of the candlestick.
- After the first phase, you should expect a price drop. It usually occurs in the afternoon and reaches a close level to the opening price. Such changes are caused by an increase in the number of sellers. They push the asset price to the level that was at the time of the opening of trading.
- Next, for the best possible analysis, investors need to confirm the trend reversal. To this end, traders often analyze candlestick patterns that follow the Shooting Star. A trend is considered bearish only if the pattern that follows the one described above also reflects a price drop.
Shooting Star confirms a price decline, especially if the chart following this pattern indicates the same trend. Traders consider such options as shorting or selling. Thus, the Shooting Star Candlestick Pattern helps predict future market trends more accurately and, accordingly, make the right decisions.
What the Shooting Star Shows Us?
The Shooting Star Candle Pattern consists of several parts, the widest of which shows the difference between the price. The upper wick indicates how the price rose from the opening to the upper during the day. The lower wick is often shorter and shows the price drop by the time the trade closes.
To understand what is a Shooting Star Candlestick, it is also worth paying attention to the color of the chart, which indicates the difference between the opening and closing price. There are two possible types of colors: green and red. The first option shows that the closing price is higher than the opening one. The green Shooting Star Candlestick signifies a bearish trend in the market. On the other hand, the red Shooting Star candlestick is a more powerful signal that gives traders information about the approaching bearish trend.
Insights from Shooting Star Patterns
According to the Shooting Star Candle Pattern, a trader realizes that a bearish trend in the market is coming. However, it is too early to conclude before a new model appears the next day. If other types of Shooting Star Candlestick also indicate a price drop, investors can start making trading decisions based on this data, for example, resort to shorting, selling assets, etc.
Traders should pay attention to the active trend at the opening of the pattern, as well as the price drop that occurs in the afternoon. The trend must be confirmed. For this purpose, investors use candlestick patterns for the next few days.
Limitations of the Shooting Star
The Forex Shooting Star pattern is quite useful for traders, but it also has its drawbacks. Sometimes, this model generates false signals. That is why, when creating a trading strategy, it is better to use several similar charts (for example, the Shooting Star Doji Candlestick will be effective) and remember the importance of fundamental analysis. In this way, traders will be able to make a more accurate forecast and receive more profit.
How to Trade Forex with Shooting Star: Tips and Best Practices
Investors use the Shooting Star in Forex to predict bearish trends and perform technical analysis. A market takeover by sellers is accompanied by a price drop, which is necessarily reproduced on the chart. To be successful in trading under such conditions, an investor should focus on the following actions:
- Searching for an entry point;
- Determining the target profit;
- Active use of stop loss.
Summary
The Shooting Star is formed by the behavior of bulls in the market. At the opening of the session, they were active, which led to a price increase. However, by the close of trading, the bears seized the initiative. As a result, the price of the asset fell to the previous level. The Shooting Star in Forex trading indicates that bulls' interest in an asset has dried up, and traders should expect a change in market mood and a trend reversal.
The effectiveness of the pattern depends on how a trader works with this chart. The better they can analyze them, the more successful an investment strategy can be. To do this, it is worth studying at least two or three candlestick patterns that follow the Shooting Star formation.
