Candlestick patterns that look like shooting stars are chart formations. During this scenario, the price of an asset is pushed up significantly but then rejected and closed near the open price. As a result, you will have a long upper wick, a small lower wick, and a small body. 

What is a shooting star candlestick pattern?

Shooting Star candlestick patterns are regarded as bearish reversal candlestick patterns that typically occur at the top of an uptrend. An open, low, and close with roughly the same price are referred to as a Shooting formation. In addition, there is a long upper shadow, generally defined as being at least twice the length of the actual body. Our Candlesticks Basics Guide explains what a 'real body' is. The Shooting Star candlestick is formed when the low and the close are the same.

Why Are Shooting Stars More Bearish? 

The bears close below the opening price and reject the bulls altogether in bearish shooting stars. When low and an opening is roughly the same, Shooting Star formations are less bearish but still bearish. Despite the bulls' efforts, the bears could not bring the price back to its open price.

What is the purpose of a shooting star candlestick?

An effective technical analysis tool for noticing a bearish divergence in the market is the shooting star candlestick pattern. Traders looking for an exit point after going short on the market or traders looking for an entry point after going long may find the shooting star a helpful indicator.

How to identify a shooting star pattern

Trading shooting stars requires the correct identification of every candlestick pattern. The following characteristics can distinguish a shooting star candlestick:

• A candlestick's upper tail, also known as the "shadow," is at least two to three times longer than its body.

• Ideally, the lower tail or shadow, which extends below the candlestick's body, should either be non-existent it should not be much longer than the candlestick body.

• Candlestick bodies, which show the opening and closing prices, should be short as well; that is, the opening and closing should be very close to one another.

What does Shooting Star tells you?

The presence of shooting stars indicates potential price tops and reversals. A shooting star candle appears when there have been three or more consecutive high-rise candles. Even though some recent candles were bearish, they can also happen during a period of overall rising prices.

A shooting star appears after the advance and rises strongly during the day. This pattern indicates the same buying pressure as in previous periods. As the day progresses. However, sellers step in and push the price back down to near the open, wiping out the gains for the day. In other words, buyers lost control by the end of the day, and the sellers may now be taking control. Long upper shadows indicate buyers who bought during the day but are now losing position since the price dropped back to the open.

After the shooting star candle, a second candle forms to confirm the shooting star candle; the next candle must close below the close of the shooting star and stay below the high of the shooting star. The after shooting star candle should gap lower or open near the previous close, then move lower on heavy volume. Down days following a shooting star confirm the price reversal and indicate the price could fall further. Short sellers may seek to take profits.

The shooting star's price range may still act as resistance when the price rises after a shooting star. A shooting star, for example, could cause the price to consolidate. As long as the price rises, the uptrend remains intact, and traders should avoid shorting or selling.

Examples the Shooting Star candlestick pattern

A shooting star shows that the price opened higher, went lower (upper shadow), and closed near the open. Following the lower close of the previous day, a potential price decline was confirmed. The price moved within a downtrend for the next month and did not surpass the shooting star's high. If trading this pattern, a trader would sell any long positions once the confirmation candle appeared.

It is the utmost important to remember the following points before trading with the shooting star:

1. Trade Entry: You should ensure that the previous trend is bullish before entering a shooting star trade.

2. Stop Loss: When trading a shooting star candle pattern, it is always recommended that you use a stop-loss order.

3. Taking Profits: For this trade, you should set a price target equal to the size of the shooting star pattern.

The Difference between the Shooting Star and the Inverted Hammer

The shooting star and inverted hammer appear almost the same, but they differentiate. To understand what an inverted hammer candlestick is, you must first learn what a shooting star candlestick is.

Inverted hammer candlestick

Inverted hammer candlestick patterns are primarily bottom reversal patterns. When a downtrend is about to end, this pattern usually forms. It can also develop during a pullback in an uptrend or at support. For an inverted handle candle to form, the stock must trade significantly higher than where it opened. From there, the price must drop near or close to the low for the day. The upper shadow of the inverted candlestick pattern shows that potential buyers may be taking action.

While the sellers have regained control, traders can see the emergence of buying interest by driving the price lower, which indicates early signs of bears. As a consequence, the next trading day must confirm a sharp reversal in favor of the bulls. In this way, an inverted hammer shows that a trend is under pressure, and a candle formation implies that the bulls are on their way in.

Bearish candlestick, or the shooting star candlestick

However, a shooting star is essentially a top reversal pattern, unlike an inverted hammer, which is a bottom reversal pattern. Shooting stars differ from inverted hammers primarily in that a shooting star represents bearish reversal while an inverted hammer signifies a bullish reversal. An upward trending shooting star is normally seen at the end of an uptrend, or during a bounce within a downward trend, or at a resistance point.

During an ongoing, strong rally, a shooting star candlestick pattern forms, causing the stock price to open significantly higher and continue to rise strongly. At the end of the session, the price reverses, closing near the day's low. We expect the Shooting star candlestick pattern to be confirmed on the next trading day with a solid bearish day. Hence, the trend is up, but the shooting star candlestick formation suggests that bears have already begun fighting. In addition, the follow-up selling indicates the end of the uptrend and the beginning of a short-term reversal in price.

Three simple conclusions may be drawn when comparing the inverted hammer and the shooting star: 

1. A good entry point would be the inverted hammer pattern

2. It is possible to consider the shooting star pattern as an exit point.

3. Mixing and matching different trading patterns can ensure you have an effective trading strategy

What are the shooting star trading strategies

You should verify the pattern of a shooting star before entering a trade. A stop-loss order is always a good idea whenever you trade the shooting star candle pattern. Trading the shooting star pattern may result in false signals, as nothing is 100% sure in stock trading. In order to calculate the price target for the shooting star, multiply the pattern size by the candle length. Our target is an increase in price equal to three times the length of the shooting star, including the wick.

The shooting star candlestick strategy utilizes a small bearish reversal candlestick pattern that resembles the inverted hammer. A shooting star also refer as a pin bar and has distinctive price action trading features. If it develops at the right place, it becomes a very "dangerous" pattern.   

We will show you how to catch a falling knife without cutting off our fingers if you are not trained in reversal trading with the best shooting star strategy. It is possible to spot a market top and trade it correctly by using the shooting star candlestick pattern.

Trading the financial markets with the shooting star candle strategy is a very simple, yet highly influential methodology. A trader can trade stocks, forex, currencies, commodities, futures, and even cryptocurrencies over a wide range of time frames. We will propose trade setups with an astonishingly high success rate using this reversal trading strategy. On the other hand, your Forex candlestick chart will occasionally show them.

Let’s explore the shooting star trading strategies:

The Chaikin Money Flow Indicator should be attached to the Preferred Time Frame

Preparing your charts for battle should be your first step. The Chaikin Money Flow indicator can be attached to any time frame you choose. The bearish shooting star pattern can only be validated by using this additional technical tool. We accomplish one important thing when we use the CMF indicator. Once the bearish inverted hammer develops on our Bitcoin candlestick chart, the validity of the bearish shooting star will be instantly confirmed or invalidated. In other words, the price won't move away from the ideal entry price. We will now turn our attention to price action.

Following a solid bullish trend, the Shooting Star Candle would appear

It is essential to pay attention to where the shooting star candlestick develops.

A bearish shooting star candle performs highly due to this whole ingredient. Strong uptrends must contain the following:

• Assuming the trend continues, we can expect a gradual move to the upside

• Before the shooting star candle, the last part of the uptrend should be more volatile.

• In essence, we're searching for a market top in which the bulls are exhausted and have reached a climax.

Does the inverted hammer in the chart satisfy all the requirements? Let's examine the chart.

After the bearish shooting star candle develops, the CMF indicator must be below 0 lines

Chaikin Money Flow can be used to read and measure institutional accumulation and distribution activities in any market. If the CMF reading drops below zero, the sellers are in control.As can be seen, the bearish inverted hammer appears as a spotted bearish shooting star. Shadows are more than twice as long as the body, the body is small, and there is very little lower shadow. The candle would be more powerful if the closing price was below the opening price.Despite all that, it's still an excellent pattern to trade because of all the other characteristics. Next, we will find the right entry point for bearish shooting stars.

Once the Shooting Star Candle breaks the low, sell

You should place a sell limit order below the shooting star's low. This is a straightforward entry strategy. As described in textbooks, this is a good approach.

Stop loss must be above the high of the Shooting Star Candle. Enter your stop when you enter the slow part of the prevailing trend.

Hiding the protective SL above the pattern is simply a matter of keeping it hidden. For protection against possible false breakouts, you can add a buffer of a few pips. When it is full blown, the top creates a level of space where the bears cannot find any means of stopping the fall. There is more volatility at the end of a trend. This pattern makes for a deadly trading strategy when combined with the shooting star reversal pattern.Thus, we profit when the price reaches the part where the prevailing uptrend is moving slowly. On the downside, that will be where the price finds some hostility. When that happens, we'll clear out our positions. 

Benefits and Limitations of the shooting star candlestick pattern

Shooting stars may indicate a negative reversal in the market, in other words, that market prices could decline. A derivative like a CFD or spread bet can help you profit from a decline in prices. 

Log into your account and then search for the asset you would like to trade in the search bar. In the deal ticket, enter your position size and then pick the cell you want to trade.

Benefits if shooting star candlestick

Shooting star candlesticks are an excellent technical trading tool for new or beginning traders due to their simplicity. If traders follow the pattern description, spotting a potential shooting star candle is straightforward.

Candle patterns alone can sometimes be flawed. However, the shooting star can confirm the new bearish bias if it appears close to a level of resistance or trend line. Because one candle is not very significant in the overall trend or movement of the market, one candle is not very important.

It is important to manage risk when utilizing this candlestick pattern. Traders are therefore provided with a 'safety-net' should the market decline. There are also the following benefits:

• Easily identifiable

• Beginners/new traders will find it helpful, but not exclusively

• It is relatively reliable as a bearish reversal indicator, especially if it occurs near a resistance level.

Limitations of the Shooting Star candlestick

Trading decisions are not purely based on candle patterns like those in a shooting star. During a major uptrend, one candle is not that significant. Prices constantly fluctuate, so the sellers taking control for parts of one period might not be all that significant.

Confirmation is therefore required. After a shooting star, the price must fall, although there is no guarantee the price will fall further or how far. A brief decline could lead to the price advancing by the longer-term upward trend.

You can control your risk by using stop losses when using candlestick charts. You can also use candlestick charts alongside other analysis methods. If a candlestick pattern appears near a level deemed necessary by other forms of technical analysis, it may have more significance.

Sum up

The shooting star is a candlestick pattern that forms in candlestick trading. This indicator in technical analysis recognizes a possible reversal of price action. The shooting star pattern represented as a bearish reversal signal because it demonstrates a failed attempt to drive a price higher and intense selling action.

It is due to their distinctive features, such as the short body and long wick, shooting star candlesticks are easy to identify, even in a larger or more detailed graph. In addition to understanding and visualizing current trends and behavior, they can also predict future market trends and directions.

When making investment decisions, you should use other functions of technical analysis along with shooting star candlestick pattern. You’ll have access to both fundamental and technical analysis tools, so you can make informed decisions.