A red shooting star at the top means that the bulls tried to consolidate the price higher, but they failed. Like other candlesticks the shooting star has advantages and disadvantages. In this section, you will see examples of the formation of a shooting star on the USDCHF daily chart. The price at which you are targeting to exit a trade and book profits should be equivalent to the size of this pattern and its progression. If the security reaches your expected price level, you can make a successful exit from the same and thereby book profits. Candlestick chart created using Plotly demonstrating the positions of the inverted hammer.
This indicates that the closing price was higher than opening price. Many may get deceived and fall for it, but in reality, these candlesticks are variants of an inverted hammer candlestick pattern which is also a popular bear reversal cue. The bulls or buyers struggle to push prices higher as more bears or short sellers enter the market and place short positions. The high of the long shadow acts as a resistance level, above which bulls struggle to push prices higher as bears enter the market. Consequently, prices start to edge lower as bears appear to be winning the battle. At the end of the session, the price retreats from the highs of the session and closes near the opening price.
Shooting Star Candlestick Pattern: Meaning and Interpretation
The material provided herein is general in nature and does not take into account your objectives, financial situation or needs. However, you can also use other indicators such as RSI and the stochastic oscillator to double check that momentum has shifted. There shooting star vs inverted hammer is no more efficient way of doing that than in a trading simulator with a realistic trading environment. Now, the trade is protected against rapid price moves contrary to our trade. Luckily, this candle is relatively big and goes way beyond the minimum target.
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- This is especially the case when the wick of a shooting star is also the new short-term high.
- Its long upper shadow shows that buyers tried to bid the price higher.
Demo accounts are a vital tool for traders of all experience levels, as they give you a sandbox environment to trial strategies before you put them to the test with real funds. To spot an inverted hammer, look for a candlestick with a long upper wick and little to no lower wick. So, depending on what various indicators and subsequent candles tell you, consider going long (buying) only if you think the uptrend will continue. On the other hand, you should sell (go short) if you believe the inverted hammer isn’t powerful enough, and the downtrend will most likely resume.
The Shooting Star Candlestick Pattern & the Hammer Candlestick pattern
The only difference between them is whether you’re in a downtrend or uptrend. This should set off alarms since this tells us that there are no buyers left to provide the necessary momentum to keep raising the price. The Hammer and Hanging Man look exactly alike but have totally different meanings depending on past price action. At this point, you might also want to check that the exit points you’ve identified align with your chosen risk-reward ratio.
It may also occur during a period of overall rising prices, even if a few recent candles were bearish. No, the shooting star pattern indicates only a bearish trend, but can also form in an uptrend. In this case, the probability of false signals is very high. There are several ways to trade a shooting star candlestick pattern. Due to its accuracy and effectiveness in analysing future market trends, shooting star patterns are quite reliable.
How accurate is the shooting star pattern?
Like any other candlestick pattern, the shooting star pattern cannot be used in isolation to make a trading decision. The pattern does not provide accurate insights for trading price reversals on its own. Therefore, it should always be used with other indicators or confirmation candles. The shooting star is a bearish reversal candlestick that appears after a significant price advance.
Now that you are well aware of the meaning of this pattern, let’s delve deeper into its other aspects. Brief study analyzing the potential of using the inverted hammer candlestick in trending of assets using python language. The chart above clearly shows that the shooting star pattern emerges as soon as the RSI reading is above 70, asserting overbought conditions. The pattern forms at an area of strong resistance indicate that the price is likely to edge lower from the bullish setup. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. To see how a hammer pattern works in live markets without risking any capital, you can open a FOREX.com demo account.
Psychology behind inverted hammer candlestick pattern
Now that you have a good understanding of what the shooting star and a hammer candlestick pattern are, let’s take a look at how to use them to buy/sell stocks. It is important to mention that the shooting star candlestick pattern is even more reliable when it develops after three consecutive bullish candles. It is easy to confuse the two candlestick patterns since they are similar in appearance. Both of them have a small or no lower shadow, tiny real bodies that are close to the candle’s lower portion, as well as long upper shadows.
In other words, the wick (tail) doesn’t have to point in the opposite direction of the new trend. It simply needs to show that there was selling pressure coming at the highs or lows of the reversal. For this reason, a shooting star candlestick pattern is a very powerful formation. Its shape gives the pattern a lot of attention as the wick always sticks out from the rest of the price action. Unlike the evening star, the bearish shooting star is a weak trading signal and does not always work out.