Shooting Star and How to Use it in Forex Trading

forex shooting star

However, the pattern sometimes indicates a long-term reversal from an overall uptrend to an overall downtrend. A 15-minute chart of GBP/USD in the forex market is shown below, illustrating an instance of the shooting star formation occurring and correctly presaging a turn to the downside. Selling must occur after the shooting star, although even with confirmation there is no guarantee the price will continue to fall, or how far. After a brief decline, the price could keep advancing in alignment with the longer-term uptrend. First, the implication is for lower prices therefore we want to look for entries to short.

However, caution would have to be used because the close of the Shooting Star rested right at the uptrend support line for Cisco Systems. Generally speaking though, a trader would wait for a confirmation candle before entering. However, other indicators should be used in conjunction with the Shooting Star candlestick pattern to determine potential sell signals. However, if the bulls manage to raise the quotations above the high of the pattern, the signal to sell will be cancelled, and the upward movement may return. A gap is an area of price gaps and discontinuity on a financial instrument’s chart. It occurs when the opening price of a trading period has risen or fallen significantly compared to the closing price of the previous trading session.

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When a shooting star pattern is identified, it can indicate a potential reversal in the market. This is because the pattern suggests that sellers are gaining control, and that the uptrend may be coming to an end. The long upper shadow indicates that buyers were unable to push the price any higher, and that the sellers were able to push the price back down. The perfect location of the shooting star candlestick pattern is at a key level or a strong resistance level.

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As such, we can confidently label this candlestick as a shooting star pattern. Notice that immediately following the bearish shooting star formation, that the price continues to move lower, in concert with the larger bearish trend. This is an example of a shooting star forming within the context of a larger bearish price move. And that is to say that we should expect downward price pressure following a confirmed shooting star pattern. Depending on your comfort level and style of trading, you may choose one entry method over the other or choose some other variation altogether.

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Keep in mind that the pattern is purely technical and doesn’t take into account economical and political turmoils that can affect the currency valuation. There are several candlestick patterns, but you shouldn’t confuse yourself to finding the best one. The colour of the shooting star pattern does not matter, either forex shooting star green or red. All information on The Forex Geek website is for educational purposes only and is not intended to provide financial advice. Any statements about profits or income, expressed or implied, do not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed.

Bearish Shooting Star Candlestick

A shooting star is a bearish candlestick with a long upper shadow, little or no lower shadow, and a small real body near the low of the day. Said differently, a shooting star is a type of candlestick that forms when a security opens, advances significantly, but then closes the day near the open again. The shooting star candle stick pattern is a beneficial technical analysis tool to notice a bearish divergence in the market. The shooting star indicator may be useful for traders gone short on a market looking for an exit, or traders looking for an entry point to go long. We will plot a bearish channel by connecting the most prominent swing highs within the downtrend, and then run a parallel of that line off of the lower swing points.

The shadow of the candlestick always shows a price rejection from a certain price level. For example, sellers are already waiting for their sell orders to be filled when buyers push the price. When sell orders are triggered from a certain level, the price will decrease again, showing sellers’ dominance over the buyers. Because buyers could not keep on pushing the price up, they had ended up against the sellers.

In this case, we will employ the nine period simple moving average as the mechanism for trailing the price action and issuing our buy exit signal. More specifically, when the price crosses above and closes above this nine period simple moving average line, we will exit the position completely. Of course, as with any technical indicator or pattern, the shooting star is not foolproof. To enhance the accuracy of the shooting star pattern, traders can consider additional factors.

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Traders should always use other technical indicators and fundamental analysis to confirm their trading decisions. A Shooting Star pattern forms when the open, high, and close prices are almost the same, but the low price is significantly lower. This pattern typically occurs at the top of an uptrend and is seen as a bearish signal. The long upper shadow of the candlestick represents the failed attempt of buyers to push the price higher, indicating a potential reversal of the trend. In approximately the center of the chart, you can see a strong, sustained up move in GBP/USD. Several candlesticks show the currency pair moving sharply higher, but then a candlestick (the one that occurs between the two red arrows pointing down) forms a shooting star pattern.

However, in forex trading, the pattern is also sometimes referred to as a pin bar or a hammer. This price action creates a small body and a long upper wick, indicating that buyers were unable to maintain control of the market and that sellers have taken over. The long upper wick shows that there was significant selling pressure during the day, with buyers unable to push prices higher. Utilize stop losses when using candlesticks, so when they don’t work out your risk is controlled. Also, consider using candlesticks in conjunction with other forms of analysis. A candlestick pattern may take on more significance if it occurs near a level that has been deemed important by other forms of technical analysis.

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This confirms that the sellers are gaining control, and that the uptrend may be over. The colour of the shooting star candlestick does not matter, either red or green. The only thing that matters is the candlestick’s location, prior trend, and structure. The candle that forms after the shooting star is what confirms the shooting star candle.

  • This is the simple psychology behind the shooting star candle that every retail trader must learn in technical analysis.
  • In the world of forex trading, there are a number of technical indicators and patterns that traders use to try and predict future price movements.
  • The candlestick for your chosen forex currency pair would open, close, and find a low at similar price points.
  • We’ll start with the of countertrend variation of the shooting star set up.

In the illustration above you can see what the shooting star candlestick appears like. You agree that LearnFX is not responsible for any losses or damages you may incur as a result of any action you may take regarding the information contained on this website. Our second trade example shows a shooting star forex pattern (this time with a red body), which formed right at the high of a bullish trend before a strong reversal lower followed. The chart above shows two examples of a shooting star forex pattern (marked with ovals) that formed right at the end of periods when price advanced higher, followed by bearish reversals.

The shooting star pattern is named for its resemblance to a shooting star, with the long upper wick representing the tail of the star and the small body representing the head. The shooting star pattern is also sometimes referred to as a pin bar or a hammer. In technical analysis, if the price goes up and then closes below 50% of the total candlestick’s range, it is a sign of the strength of sellers. The Shooting star pattern is formed when the price of a currency has increased and still continues to increase. Then the formation of pattern indicates that the price of that currency is soon going to fall. Initially the price rose to some extent during the trading day however due to the domination of the sellers, the price changed its direction.

forex shooting star

However, during the formation of the shooting star, sellers were able to take control, causing the price to fall from its high point. Candlestick patterns are a crucial component of technical analysis in forex trading. Traders use these patterns to identify potential market reversals and make informed trading decisions. One popular candlestick pattern that traders often encounter is the shooting star. Traders who use the shooting star pattern look for confirmation of the reversal before making a trading decision. This confirmation may come in the form of a bearish candlestick pattern, a break below a support level, or a move below a moving average.

What is the forex shooting star?

There is a long upper tail or upper shadow, a comparatively much shorter lower tail or shadow, and a noticeably short body with the price closing below the candle’s opening price. The inverted shooting star is a bullish analysis tool, looking to notice market divergence from a previously bearish trend to a bullish rally. An inverted shooting star pattern is more commonly known as an inverted hammer candlestick. It can be recognized from a long upper shadow and tight open, close, and low prices — just like the shooting star. The difference is that the inverted hammer will have a bear run prior to the candle you’re looking for. After this sluggish price action higher, we can clearly see that a shooting formation prints on the price chart.

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