Level: Beginner
Reading time: 5 min
The Shooting Star candlestick pattern is one to look out for. It has a bearish reversal candlestick pattern that looks like an inverted hammer. It is also known as the Pin Bar amongst various price action traders because of its price features which are quite distinct. As a result, if it develops in the right place, it produces a pretty “dangerous” pattern.
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What is the Shooting Star candlestick pattern?
Often described as a bearish reversal chart pattern, a Shooting Star has a long upper wick with a small to no lower wick on a small body. So, this is a pin bar created from a single candlestick. But the Shooting Star inverted hammer may only be considered reliable if they occur at the end of the uptrends.
The real body of this may be either green (bullish) or red (bearish), depending on your chart’s settings. Moreover, the wicks must be at least two to three times the size of its body. However, this may not give you a complete idea of the bulls and bears battle that occurs behind the Shooting Star pattern. Therefore, it is essential to study the pattern in more detail.
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The idea behind the Shooting Star
The main question is determining who controls the market: bulls or bears. Initially, the bulls have control as the uptrend is in motion. In this case, they will drive prices to complete highs. However, they will eventually hit a climax point. At this moment, the bears fight back. They fight against the bulls successfully and drive the price back down as low as below the opening state.
Now come the closing prices. If it is a bearish Shooting Star, the closing price will most likely be below the opening price and closer to the low end of the bar. On the other hand, if it is a bullish Shooting Star, the closing price will be above but closer to the opening price, at least in its close proximity.
The idea behind a bearish inverted hammer is to apply pressure to the close of the candle below the opening price. This gives the bearish Shooting Star more power to reverse the bullish trend.
What is Shooting Star trading?
Considering the whole market, training yourself to read the sentiment behind the hammer candle is essential. You are unlikely to succeed if you try to identify the textbook image of a Shooting Star.
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You need a bullish trend after the inverted hammer candle; otherwise, it won’t be a tradable candlestick pattern. The Shooting Star trading will likely fail if you don’t have one. In fact, the confirmation of the Shooting Star candle depends on the breaking of the candle’s low. However, you should always confirm it from other sources to minimize the risk of loss. Avoiding the Shooting Star chart pattern is best if you’re an aggressive trader.
When it comes to strategies, you can backtest different types. Before outlining the strategy rules for Shooting Stars, it is best to note the rules listed below.
The Shooting Star strategy
We will look at the inverted hammer or the bearish Shooting Star to demonstrate one of the best trading strategies. The Shooting Star strategy is a simple yet highly effective trading method in financial markets. Anything can be traded, including currency commodities, stocks, and more, over various time frames.
The steps below explain exactly how to do it.
Step #1: Attach the Chaikin Money Flow Indicator to your preferred time frame
The first step is to prepare all of your charts. Attach the Chaikin Money Flow (CMF) indicator to your chosen time frame. You won’t need to use other technical tools to confirm whether or not the bearish Shooting Star pattern is valid. The CMF indicator helps us obtain the right property.
The validity of the bearish Shooting Star can be confirmed once the bearish inverted hammer appears on the candlestick chart. After this, the price will not shift further from the ideal entry price.
Note! The Chaikin Money Flow indicator is an excellent tool for reading and measuring accumulation-distribution activity in the market.
Step #2: The Shooting Star trend will occur after a strong bullish trend
Now, let’s discuss the price action. The location of where the Shooting Star develops is crucial. There should be a strong uptrend of the following features:
- The first area of the trend is a slow and steady move upwards.
- The latter half of the uptrend, before the Shooting Star candle, has to be more volatile.
In essence, you need to locate a full-blown market top where the bulls have reached a climax.
Step #3: The CMF indicator should be below the zero lines when the bearish Shooting Star begins
This is the part where we zoom into the inverted hammer to identify whether it meets all requirements or not. A CMF reading below the zero lines displays that sellers have taken control of the market.
To identify if the bearish Shooting Star satisfies all the requirements of an inverted hammer, ensure that the shadows are at least twice as long as the body, small body, and little lower shadows.
Step #4: Enter as soon as you hit the low
We must find the right entry point for a bearish Shooting Star candle. All you have to do is enter a trade (down) as soon as the price breaks the low of the Shooting Star Candle.
When the price reaches the portion where the uptrend is slower, profits can be acquired. That’s where prices find the ability to find hostility and fall.
The bottom line
The Shooting Star strategy is one of the best and most reliable methods to trade trend reversals. This pattern offers an attractive risk-to-rewards ratio. Next time you identify a Shooting Star candle that satisfies all requirements, remember this.
However, it is also essential to keep in mind that any signal given by this pattern needs to be confirmed using other technical analysis tools. This will reduce the risk of losing funds when trading.
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