Shooting Star Candlestick Pattern: Statistics, Facts, & Historical Backtest
The Shooting Star Candlestick Pattern can identify bearish market reversals and provide traders with ideal price levels to short or exit the trade. The pattern is easily identifiable as traders can spot it with an extremely long upper wick, which also signals the market reversal point. In our article, we will learn in-depth about the Shooting Star Candlestick Pattern and how to trade it. Reversal patterns mark the turning point of an existing trend and are good indicators for taking profit or reversing your position.
- For those unaware, the MACD basically measures the difference between two exponential moving averages and gives users a good indication of when the market is expected to change a trend direction.
- No, it can be found on any timeframe, but many traders prefer daily or 4-hour charts for better reliability.
- It also has little to no lower wick as the price also closes near its low price.
- The hammer candlestick is a bullish reversal pattern which forms at support levels after a price decline.
It is the lack of complexity that makes shooting stars a fairly reliable signal of bearish trend reversals. The three main advantages of shooting stars include the ease of spotting and shooting star candlestick understanding them and their usefulness in identifying upcoming price trends. The two main disadvantages of shooting star patterns include their tendency to produce false signals from time to time and the need to use more than one candlestick to confirm the price trend.
Don’t memorize the Shooting Star Candlestick Pattern, here’s why…
Begin by looking at the broader context – has the market been steadily climbing for several sessions or weeks? A shooting star holds greater weight when it appears after a discernible uptrend. Check if there are prior swing highs that could function as resistance, or if the price is nearing a significant round number. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Academy. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets. We have no knowledge of the level of money you are trading with or the level of risk you are taking with each trade.
- Hammer candlesticks are commonly seen during topping formations, reversals, and periods of volatility.
- The overall performance is a mid list 55, where 1 is best and 103 is worst.The best average move 10 days after the breakout belongs to shooting stars after an upward breakout in a bear market.
- If you’d like to deepen your understanding of this pattern and learn to apply it in live markets, you should consider joining WR Trading for more personalized guidance and educational programs.
- That’s one of the reasons it’s so important not to get too focused on any single candle.
- One should not only rely on a candle pattern like in a shooting star for making trading decisions.
The price is likely to reverse at these levels because they are usually known to most traders and there are huge numbers of sell limit orders that can force the price to reverse. Hakan Samuelsson and Oddmund Groette are independent full-time traders and investors who together with their team manage this website. They have 20+ years of trading experience and share their insights here. As always, the risk/reward ratio should be taken into consideration and disciplined money management should be exercised whenever a trade is entered into. This formation offers traders valuable insights, but it comes with its own set of advantages and limitations.
#3: The stronger the momentum, the better
This bearish reversal candlestick has a long upper shadow, little (or no) lower shadow, and a small body. While typically a reversal pattern, shooting stars can form within downtrends as continuation signals. Pay attention to the upper shadow length and size of the real body for clues. On rare occasions, a shooting star candlestick at bottom of a trend may signal a pullback before more downside. When the price of the security is in an uptrend, there is more buying pressure in the market.
Understanding these can help traders use the pattern more effectively within their strategies. With the right context and confirmation, it can be a reliable part of your trading toolkit. Keep reading to understand when we should pay attention to a shooting star candle. It’s a careful examination of various elements, including the length of the upper wick and the position within the trend. Not all candlesticks shapes earn names—so you should probably check out the ones that do.
In other words, the wick (tail) doesn’t have to point in the opposite direction of the new trend. It simply needs to show that there was selling pressure coming at the highs or lows of the reversal. The shooting star is a single bearish candlestick pattern that is common in technical analysis. The candle falls into the “hammer” group and is a first cousin of the – hanging man, hammer, and inverted hammer. If you’re unfamiliar with any of these patterns, check out our Quick Reference Guide.
Sometimes, traders try to predict the pattern before the candle even closes, but that’s risky. Letting the daily, 4-hour, or chosen time frame candle finish ensures you see the final real body placement and wick length. Premature action might lead you to enter a short position without the actual confirmation that the price rejected higher levels.