A sort of candlestick pattern known as a “shooting star” develops when the security price opens sharply higher before closing, close to the open price. The gap between the closing price and the day’s highest price should be twice as wide as the body of the shooting star. It occurs near the peak of an uptrend and denotes a turn to the downside.
Shooting Star in a nutshell
- A shooting star forms when a security’s price opens high but closes near the opening, indicating a potential downtrend.
- Shooting star often precedes market downturn for about a month.
- Pattern characteristics: Upper tail elongated, minimal lower tail, short body.
Understanding the Shooting Star
A bearish candlestick pattern known as a shooting star forms when a security’s price opens sharply higher but closes near the opening price, featuring a lengthy upper shadow and no lower shadow.
Shooting stars are particularly useful when they emerge after two to three successive candles that have higher highs and signify a potential downside reversal. During the trading day, a shooting star appears and climbs sharply, displaying the same purchasing pressure as in recent trading sessions.
Sellers drive the price down close to the open at the close of trading. This demonstrates how the sellers have gained dominance towards the end of the day, and the buyers have lost their influence.
As the price lowers back to the open, the extended upper shadow shows that the purchasers are losing ground. The candle that follows the shooting star gaps downward before descending on strong volume. This candle confirms the price reversal and indicates a further price decline.
Example
Before launching a shooting star trade, make sure the prior trend is still a bullish one that is current.
- Stop Loss: Always use a stop-loss order while trading the shooting star candle pattern.
- Making Money: The price target for this trade should be the same size as the shooting star pattern.
Imagine prices going up, up, up. But then, suddenly, there’s a shooting star. This happens when the price starts high, goes even higher during the day, but ends up closing near where it started. The next day, the closing price is lower, suggesting things might start going down. And even though the price goes up again later, it never goes higher than that shooting star point.
After we see a shooting star, the market usually starts going down for about a month. For traders, this is a sign to think about selling any stocks they have because the market might be turning. They usually wait for another signal called the confirmation candle to be sure.
Additionally, think about combining candlestick analysis with other methods of analysis. If a candlestick pattern appears close to a level identified as significant by different types of technical analysis, it may become more important.
How to trade the Shooting Star with Binary Options?
Identify an Ongoing Bullish Trend
Prior to considering a shooting star pattern in binary options trading, make sure there is a clear uptrend in the market. This could be confirmed by higher highs and higher lows in price action over a period of time.
Confirm the Shooting Star Pattern
Look for a candlestick with the characteristics of a shooting star:
- Upper Tail: Look for a line above the candlestick body that is at least 2–3 times longer than the body.
- Lower Tail or Shadow: This should be minimal or absent, not much longer than the body.
- Candlestick Body: Very short, indicating opening and closing prices are close together.
Place the trade
Place your binary options trade once you have identified the shooting star pattern. If you are trading a bearish shooting star pattern, you would enter a put option in the expectation that the price will fall.
Conclusion
A shooting star is not the same as an inverted hammer. Trading judgments shouldn’t be solely on candle patterns like a shooting star.
