The shooting star pattern is a popular candlestick pattern which is used in technical analysis to identify trend reversals in the stock market. The pattern is formed by a long upper shadow and a small real body, and it signals that the bulls have lost control and the bears are starting to take over the control. In this article, we’ll know how to trade the shooting star pattern.
What is the shooting star pattern
As we have said, shooting star pattern is a bearish reversal pattern that is formed at the end of an uptrend. The pattern is characterized by a long upper shadow and a small real body.
The long upper shadow represents the bulls trying to push the price higher, but they are unable to maintain control. The small real body represents the bears starting to take over and push the price to lower.
The shooting star pattern is a visual representation of the battle between buyers and sellers on the chart. The long upper shadow represents the buyers trying to push the price higher, but they are met with selling pressure. The small real body represents the bears taking control, and the pattern signals a shift in sentiment from bullish to bearish.
How to trade the shooting star pattern
By following these rules you can trade the shooting star pattern:
Step 1: Identify the pattern
The first step is to identify the shooting star pattern. Look for a candlestick with a long upper shadow and a small real body. But keep in mind you should pick the shooting start candle after a good rally, means when stock or index have rallied (for example in bank nifty at least 150 points of rally), then if you find a shooting star pattern at the top, then you can use that candle for a reversal candle.
Step 2: Wait for confirmation
Once you have identified the shooting star pattern, wait for confirmation that the pattern has completed. This confirmation can come when either first candle or second candle close below the shooting star candle, then it would be a confirmation.
Step 3: Place your trade
Once the pattern is confirmed, you can place your trade. A common strategy is to enter a short position when the price breaks below the low of the shooting star candlestick. You can set your stop loss above the high of the shooting star candlestick, and your profit target can be a support level or a predetermined target based on the risk-to-reward ratio.
Step 4: Manage your trade
Once you have entered in the trade, it’s important to manage your risk and monitor the trade closely. If the price moves against you and hit your stop loss then you should exit from the trade. If the price moves in your favor, you can consider trailing your stop loss to lock in your profits.
The shooting star pattern is a popular candlestick pattern, when your pick the pattern and execute it, then it would give you a good profit, the good thing with this pattern is that your stop loss would be very little, Suppose if the price goes against you then you can exit with a small loss. The accuracy rate of this pattern is very good, 7 times out of 10 , this pattern could give you a good profit. But to execute this trade you need to patience and conviction.
This is the end of the post “How to Trade a Shooting Star Pattern”, Hope you got some value from this post.
Nirmal is a NISM Certified Derivative Trader & the Founder of InvestandEarn.net (Financial Blog). He entered the world of Equity research to explore his interests in financial markets having 5+ Years of Experience in Share Market Trading & Investing. Nirmal frequently writes about Share Market Trading & Investment and publishes his personal view on the market. Drop him a mail at firstname.lastname@example.org.