Shooting Star candle belongs to the group of Japanese candlestick reversal patterns. This is also one of the most popular candlestick patterns today. So how to identify and apply the Japanese Shooting Star candlestick chart in forex trading? This article will answer traders’ questions. Let‘s refer to Forex Trading.
Answers about the Shooting Star candle model
Before delving into the principles and strategies of trading with the Shooting Star pattern, you need to understand the concept and meaning of this type of candlestick in trading.
What is a Shooting Star candle?
Shooting Star is a single candlestick chart with a small body, the upper wick is twice as long as the body. Meanwhile, the lower whiskers of the candlestick are often very short or almost absent. This pattern is also known as the shooting star candlestick.
In terms of shape, the Japanese Shooting Star candlestick chart is very similar to the inverted Hammer candlestick (also known as the Inverted Hammer candlestick). The biggest difference between these two patterns is that the Hammer reversal candlestick represents a bullish reversal trend. Meanwhile, the Shooting Star pattern represents a bearish reversal trend.
Meaning of the Shooting Star bearish candlestick pattern in trading
Shooting Star is a basic Japanese candlestick patterns pattern, showing a change in price from increasing to decreasing. Through this model, investors can identify and analyze market trends ranging from opening to closing. Initially, purchasing volume increased sharply, causing prices to rise. When the market is about to close, purchasing volume begins to gradually decrease, causing prices to drop. At this time, traders can consider entering a sell order to catch the trend.
This chart clearly shows market psychology. The appearance of the Shooting Star bearish candlestick pattern is a sign that the buyers are trying to push the price up, but are facing resistance from the sellers. Prices on the market have many large fluctuations. In this case, traders need to patiently observe and analyze the trend to avoid making mistakes.
Shooting Star candle provides a strong reversal signal for investors, similar to the Inside bar candle pattern. However, between these two patterns, there is a clear difference in structure because the Inside Bar candlestick consists of two candles of unequal size. In addition, the Inside Bar pattern also represents a continuing trend in market prices.
See more: Read candlestick charts: Basic & advanced material
How to identify the Shooting Star candle chart
To identify the basic Japanese Shooting Star candlestick chart, you can rely on characteristics such as:
- The candle body is very small and located below the candle, showing that the opening and closing prices are nearly equal.
- The upper wick is twice as long as the candle body (minimum length).
- The lower whiskers of the candle are very short or absent.
- Shooting star candlestick charts appear at the top of an uptrend, or areas of strong resistance.
- Candles are blue or red. However, red shows a stronger reversal trend.
- If there are consecutive bullish candles before the Shooting Star candle, the candle’s reversal signal is more accurate.
Instructions for using the trading strategy with Shooting Star candle
To apply the trading strategy with the Shooting Star bearish reversal candlestick pattern effectively, investors can refer to the method below.
Evaluate the market trend before applying the Shooting Star candle
When trading with Shooting Star charts in particular and Japanese candlesticks in Forex in general, traders need to determine the current market trend. As mentioned above, the Shooting Star pattern only gives a reversal signal if it is formed at the top of an uptrend or a strong resistance area. You need to consider whether the trend before the Shooting Star chart appears is an uptrend and has weakened.
Technical tools that help traders identify trends include Price channels, moving averages, trendlines, support, and resistance lines.
Place an order after the Japanese candlestick pattern in Forex – Shooting Star forms
For the shooting star candlestick pattern, investors need to enter a sell order when they see all of the following factors:
- After the uptrend, two candles are formed.
- Technical analysis indicators show that the uptrend is gradually weakening, and the market is about to enter a reversal phase.
- The third candle is completed.
Traders should note that the sell order placement point is determined at the opening price of the third candle.
Proceed to take profits, place Stop loss orders in the trading strategy
After entering a sell order, investors need to place a stop loss and take a profit order. This will help traders protect their investment capital and avoid potential risks. The stop loss is determined at the top of the candle or strong resistance area, 2 – 3 pips away. The take-profit point is based on a 1:2 ratio. The location of the take profit point is about 4 – 6 pips away from the sell order point.
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Principles of trading with Shooting Star candle you may not know
When trading with the shooting star candlestick pattern, traders need to clearly understand the following:
- If the Shooting Star (red) bearish candlestick pattern forms, it means the sellers have control of the market. Therefore, this model provides reliable and highly accurate reversal signals.
- The higher the trading volume of the candle, the more traders participate in buying and selling. This contributes to increasing the accuracy rate of the shooting star candlestick chart.
- If the Shooting Star reversal candlestick pattern forms above resistance levels or Bollinger bands, the trading signal will be more accurate.
A few notes when trading with bearish reversal candlestick charts in Forex that you should know
Conclude
From the above sharing, traders have grasped the meaning, characteristics, and how to apply the Shooting Star candle. This is a commonly occurring candlestick chart and provides a strong reversal signal. Therefore, traders can consider using this type of candlestick in forex investment. To update new and useful knowledge about Japanese candlestick patterns in Forex, don’t forget to read Forex Trading articles.
FAQs
Below are frequently asked questions about the shooting star candlestick pattern in investing and trading.
What indicators can Meteor candles be combined with?
Oscillators commonly used when trading with Shooting Star charts include:
- Ichimoku Cloud.
- MACD indicator diverges.
- PSAR indicator.
- RSI indicator diverges.
Which time frame is easy to determine the time to close the Shooting Star reversal candle?
Investors should choose the time frames H1, W1, M1, M5, M15, M30, and MN to easily determine the closing time of the bearish reversal candle. At the same time, you should avoid time frames like H4 or D1.
Can Japanese Shooting Star candles make predictions about the length of the next trend?
The Shooting Star chart acts as a signal indicating the possibility of a reversal in market price. The model itself cannot predict the duration of the downtrend. Investors often combine the model with other indicators and technical analysis tools to track and evaluate the intensity of downward price movements in the Forex market.
