Shooting Star - Complete Guide

NSE:NIFTY   Nifty 50 Index
What is the Shooting Star candlestick pattern?

A shooting star candlestick pattern is a chart formation that occurs when an asset’s market price is pushed up quite significantly, but then rejected and closed near the open price. This creates a long upper wick, a small lower wick and a small body.

The upper wick must take up at least half of the length of the candlestick for it to be considered a shooting star. And, it must appear at the top of an uptrend. As a result, the shooting star candlestick pattern is often thought to be a possible signal of bearish reversal. This means an uptrend might not continue (prices may fall).

Traders should be careful not to confuse the shooting star pattern with an inverted hammer candlestick pattern. They both have a longer upper wick and small body. But the inverted hammer indicates bullish as opposed to bearish reversal. Also, the inverted hammer is often seen at the bottom of a downtrend.

How to recognize it:
i) Little to no lower shadow
ii) The price closes at the bottom ¼ of the range
iii) The upper shadow is about 2 or 3 times the length of the body

What does Shooting Star tells you ?
i) Shooting stars signals a potential downside reversal
ii)A shooting star opens and rises strongly during the trading session, showing the same buying pressure that is seen over the last trading sessions. At the end of the trading session, the sellers push the price down near the open.
At the buying climax, huge selling pressure stepped in and pushed price lower. The selling pressure is so strong that it closed below the opening price.

In short, a Shooting Star is a bearish reversal candlestick pattern that shows rejection of higher price.

Before trading with the shooting star, one should remember the following points:

Trade Entry: Before you enter a shooting star trade, you should confirm that the prior trend is an active bullish trend. Entry is below the Shooting Star candle low.
Stop Loss: Place Stop Loss just above the high of Shooting Star candle or above recent high.
Taking Profits: Minimum target is the size of the Shooting Star candle. I generally prefer 1:2 as first target. Best way to ride the move is to sit till any bullish signal is sensed. You can target previous swing lows or support zone.





High Probability Scenario:-

i)Focus on the major Resistance levels, that’s where traders get trapped
When you trade The Shooting Star candlestick pattern, you want to focus on trading the major Resistance levels (the ones which can be seen on the higher timeframe).When a level is obvious and the price breaks out of it, many traders will hop on the bandwagon and buy the breakout (hoping to catch a piece of the move).However, if the price makes a false breakout, this group of traders is trapped, and their stops will trigger strong selling pressure.

Now, this is to your advantage because The Shooting Star candlestick pattern allows you to trade the false breakout and profit from “trapped” traders.

So the more obvious the level, the more traders will get trapped — and you make more money.

So here’s what you’ve learned today:

The Shooting Star candlestick is a bearish reversal pattern that shows rejection of higher prices.
Just because you a spot a Shooting Star candlestick pattern doesn’t mean you go short immediately because you must also consider the context of the markets. Confirmation to go short is always below shooting star candle's low.
Set your stop loss slightly above shooting star candle or above previous highs.


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