The shooting star candle trading strategy is one of the most recognizable. It is almost impossible to miss it on the chart, and besides, such models work out perfectly – this led to the popularity of the designs on the Forex and stock markets. In this article, we’ll have a closer look at the candlestick shooting star strategy.
What Does the Candlestick Pattern Look Like?
The strategy got its poetic name due to the outward resemblance to a shooting star. In the night sky, a long tail remains behind a small body – one can watch a similar thing in financial markets:
- The pattern consists of one candle; during identification, its position relative to the previous one is taken into account;
- The lower shadow is practically absent or it is an order of magnitude smaller than the upper one;
- The body is small, 3-5 times smaller than the upper shadow;
- On the shooting star, “High” is updated on the previous candle and all the upward movement;
- Body-color does not matter;
Steve Neeson noted that the ideal shooting star trading strategy should form with a gap upward relative to the previous candle. There are no restrictions on timeframes on which to look for this pattern. It is formed both on the daily and minute charts, but the figure from the older time interval always has more weight.
Tips on How to Trade Using a Shooting Star Strategy
The “Shooting Star” pattern, like many other figures, has its double. The figure is similar to the “Inverted Hammer”. However, incorrect identification of these figures threatens the trader with serious losses, because in this case, the “hammer” portends an increase and the “Star” drops in prices. You can trade a shooting star pattern in several ways:
- After closing the candle. The risk is not justified – if growth continues, get a stop;
- Using a Sell Stop. It is placed a few points below the Low of the reversal candle. If the U-turn really takes place, be sure not to miss the entry point. Since the lower shadow is small, the profit decreases slightly;
- After closing the confirmation candle. The logic is as follows – after the pattern, you are waiting for the formation of the next candle, if it is bearish, then at its close you open a deal for sale;
- Using a Sell Limit order. Place it based on the probable upward correction for the reversal candle. Usually, Sell Limit is set at 38.2-50.0% of the shooting star.
The above methods work on Forex, and when working with stocks, indices, and on the commodity market. A “stop” is taken out for High reversal candles or for the nearest local maximum, as for profit, you’re recommended that you focus on the imbalance levels and use partial profit-taking. Even beginners will use a shooting star trading strategy without any problems. Due to its simplicity and high probability of winning, it has not lost popularity for several decades. To increase the reliability of trading, you’re recommended using patterns of this type from higher timeframes and be sure to apply a filter in the form of horizontal levels.
