The shooting stars candlestick strategy examines a small bearish pattern with an inverted inverted candlestick that looks like the inverted hammer. Among the price action traders, the shooting star is also known as the Pin Bar and it has some distinctive price characteristics. This makes it a very ‘dangerous’ pattern if it develops in the right place.
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Once you understand what shooting stars trading is, you will understand why a candlestick pattern has such power to signal the return of a bearish trend. Very few people are good at reverse trading. Most traders actually do it so badly that they burn out their accounts.
The best shooting star strategy will address this problem and will show you how to catch a falling knife without cutting off our fingers. The shooting star candlestick pattern can help you find a top in the market and how to trade it properly.
First, let’s run through some basics:
Shooting Star Candlestick Chart Pattern – Definition
A shooting star is a bearish reversal pattern characterized by a long upper wick, little or no existing underwick and a small body. In technical analysis, the boom of a shooting star consists of a single candlestick.
The shooting star reverse hammer is only reliable if it occurs at the end of the uphill.
The figure below gives a good representation of a Shooting Star candlestick pattern:
Depending on your chart settings, the actual body of the reverse hammer may be green (bullish) or red (bearish). However, the bearish shooting star is more powerful because the closing price is lower than the opening price.
Another characteristic of the clumsy shooting star is that the fuses must be at least 2-3 times the size of the body.
This is what an actual shooting star pattern looks like on a candlestick chart:
To properly understand the bulls and beard fight behind the shooting star pattern, let’s examine this candlestick pattern in more detail.
See below:
The psychology behind the shooting star
Who is in charge?
The Bulls? Or the Bears?
Initially, the bulls are in control as the prevailing rise continues to move. The bulls are driving the price to new highs. Once the bulls peak and hit the high of the candle, everything looks bearish.
At this stage, however, the bears step into the market and fight back. They manage to overcome the bulls and drop the price back below the opening price.
In the case of a strong shooting star, the closing price would be below the opening price and near the low of the bar. And in the case of a bullish shooting star, the closing price would be higher, but close to the opening price, close.
The ability of a bearish reversal hammer to push the close of the candle below the opening price gives the bearish shooting star more power to reverse the prevailing bullish trend.
What is Shooting Star Trading?
We need to train our eyes to read the sentiment of the hammer markers, taking into account the entire market environment. It is useless to try to identify the exact stars of the textbook.
If you don’t have a bearish trend preceding the inverted hammer markers, it is not a tradable candlestick pattern. In this case, the display of shooting stars will fail.
The candle of the stars is only confirmed once we break below the low of the candle. Depending on your risk profile, you should always seek confirmation from other sources to confirm the trade.
We do not recommend being an aggressive trader when trading shooting star pattern.
You can retry different types of test strategies, but be aware that the more confluence points you use, the further the price can move from the ideal entry price.
Before we outline the rules of the best shooting star strategy. We always recommend that you take a piece of paper and a pen and write down these rules.
For this demonstration we are going to look at the clumsy shooting star or the inverted hammer.
Shooting Star Candle Strategy
The star candle strategy is a very simple but very effective methodology for trading the financial markets. You can trade stocks, Forex, currencies, commodities, futures and even cryptocurrencies over different time frames.
The types of trade setups we are going to suggest through this reversal strategy have an amazingly high success rate. The only downside is that it only occasionally appears on your Forex candlestick chart.
Let’s get started and get our feet wet.
Step 1: Confirm the Chaikin Money Flow Indicator on your proposed time frame
First, start by getting your tables ready for battle. Attach the Chaikin Money Flow indicator to your favorite time frame. This is the only additional technical tool we will use to confirm the validity of the pattern of the asterisk.
Using the CMF indicator, we achieve one important thing.
The validity of the bearish shooting star is instantly confirmed or invalidated as soon as the bearish reverse hammer develops on our Bitcoin candlestick chart. This means that the price does not move further from the ideal entry price.
Now let’s focus on the price action.
See below:
Step 2: The Shooting Star Candle will come after a strong bullish trend
The location, or where the chandelier of the shooting star develops, is very important.
This whole ingredient is what causes the bearish shooting star candle to behave with such a high degree of accuracy. We need a strong turnout that has two important qualities:
- The first part of the trend is a slow and steady move to the upside
- The last part of the rising, before the candle of the stars, should be more fleeting.
Basically, we are looking for a full blown market top where the bulls are exhausted and peaking.
Now let’s zoom in on the chart and see if the reversed hammer meets all the requirements.
See below:
Step #3: the CMF indicator should be below the 0 lines once the bearish shooting star candle develops
Chaikin Money Flow is a great tool for reading and measuring institutional accumulation spread activity in any market. Basically, a CMF reading below the zero line shows that the sellers have the upper hand and have taken over the market.
Note that the male shooting star meets all the requirements of a clumsy inverted hammer. The shadows are at least twice as long as the body, small body and very small shadow. This candle would have been more powerful if the closing price was below the opening price.
But it is still a good pattern to trade because of all the other features.
Now is the time to highlight how to find the right entry point for a bullish candlestick for a star star.
See below:
Step 4: Sell as soon as we break the low of the Shooting Star Candle
Place a limit sell below the low of the shooting star. Nothing complicated about our entry strategy. This is in line with the textbook rule.
What is the ideal place to hide your protective stop loss? Where should you exit a profitable trade when trading a star candle?
See below:
Step #5: Insert SL above the height of the Shooting Star Candle. TP when we get inside the slow part of the prevailing trend.
Simply hide your protective SL above the height of the shooting star pattern. You can add a buffer of a few pips if you want to protect against possible false breakouts.
The fully inflated bottom creates the necessary space where the bears will find no support to stop the drop. The last phase of a trend has always been more volatile. When combined with the reversal shooting star pattern, this is a killer trading strategy.
In this respect, the profit takes profit if the price reaches the part where the prevailing trend is moving slowly. This is where the price will find some hostility to continue with the downside. We want to clarify our position when this happens.
Conclusion – Best Shooting Star Strategy
The best shooting star strategy is one of the most reliable and effective ways to trade trend reversals. This single candlestick pattern can provide you with one of the most beautiful risk to reward relationships. You can risk between 10 and 30 pips and look at between 200 and 300 pips, earning a profit of 20x or 30x the risk you take.
Consider this the next time you find a shooting star candle that meets all the rules outlined in this trading strategy guide.
Many traders will warn you against reverse trading. However, finding market tops and trading reversals can be successful if you have a proven methodology like our shooting star candle strategy.
Thanks for reading!