The Shooting Star Candlestick: Making Profits Rain From The Heavens
The meteor is a single bearish candlestick pattern that is common in method analysis. The candle waterfall into the "hammer" group and is a first first cousin of the – hanging man, hammer, and inverted forge. If you'Ra unfamiliar with any of these patterns, check out our Quick Reference Guide.
Our trading practiced, Aiman Almansoori describes these patterns you said it to trade them in a fantastic webinar. Be sure to abide by our YouTube channel to watch more than instructive content like this.
What is the Shot Stellar Candle?
The shooting star has a small body and a very long upper candle wick.
As you see, the cd has a midget body located in the lower break of the pattern.
Withal, this also looks like an inverted forge standard candle pattern.
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So, how can we distinguish the two? The answer to this question is unseeable in the price direction before the universe of the candle.
The shot star candle is a reversal pattern of an upwards price go out. The anatropous malleus occurs at the end of a down trend.
Shot Star Confirmation
If a stock is in a bullish uptrend and you identify a shooting maven candle, then there is a solid chance that the trend will reverse. For this understanding, traders use this candle to enter short trades on the assumption that the bullish move is running unconscious of steam.
Once you are fit to identify the shooting sensation, you should look to open a short position along a break of the low of the candle.
The anticipation for the profit expected for the shooting star is 3:1 the size up of the candle holder.
Here is an exercise with AMC. Banknote that we are aiming for 3x the width of the shooting star candle:
Psychology of the Pattern
The shooting star candlestick is advised peerless of the to the highest degree reliable candlestick patterns. One of the reasons for this is the single structure – a small body with a high pep pill candlewick.
The psychology of the trade has many layers of complexness.
First, buyers are enjoying their gains as the breed shoots to a climactic high. As this euphoric bit begins to set in, short traders begin to sell the stock on a flurry of buy orders.
At this point, the longs who were late to the party begin to get on scared and start to liquidize as well. This panic monthlong selling and short sale leads to a sharp reversal in the price accomplish, thus generating a small candlestick body on the chart.
It is important to mention that the shooting star candlestick blueprint is even more reliable when it develops after troika consecutive bullish candles.
This creates exponential optimistic blackmail connected the graph. In some other words, exhaustion.
In such cases, the shot star candle is likely to have an even bigger pep pill candlewick. This implies that the price is about to vacat with even bigger military strength.
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3 Steps to Trading the Shooting Star
1) Business deal Entry
Before entering a meteor deal, you should first base confirm the pattern.
Hera are handful of criteria to ensure success:
- Identify an active bullish slue.
- Office a candle with a small body and a big upper candlewick.
- Wait for a pessimistic candle to bust the low point of the meteor consistence.
- Ensure elevated volume, signifying heavy supply
- This will confirm the validity of your shot wizard on the chart.
If you are healthy to identify the bearing of these signals, then you should short the security. Aft all, you are anticipating an upcoming bearish cost move.
2) Stop Loss
You should always use a stop loss fiat when trading the shooting star candle pattern. Afterward whol, nothing is 100% bonded in stock trading, and you may experience artificial signals when trading the meteor pattern.
For this argue, place the meteor candle pattern above the upper wick of the pattern.
3) Taking Net
The price target for the shooting star topology is equal to the size of the approach pattern (the length of the candle).
Similarly, our butt is for a price go on equal to terzetto times the length of meteor, including the wick.
Meteor Trading Strategy
Now that we give birth the shooting star substantiation criteria behind us, we volition combine these three basic steps into a trading strategy.
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Example #1
This is the 2-minute graph of Hewlett-Packard from June 10, 2016. The image illustrates a classical shooting star trading example.
Our trading analysis starts with identifying that the price is trending upwards.
Abruptly, a shooting star candlestick appears, which is marked with the green traffic circle connected the chart. We have a small candle body and a big upper candlewick, which confirms the shape of the rule.
Ledger entry
The next candle after the shooting star is bearish and it confirms the pattern.
Therefore, we sell the security after the pattern verification. At the synoptical time, we place a stop loss order to a higher place the high wick of the shooting star candle in order to secure our short trade.
This agency, if the Price creates an unpredicted bullish move caused by high-level volatility, we will beryllium protected.
Our maximum passing will be equal to the distance 'tween the rase we short HPQ and the dismantle of the block up loss order.
The first blue arrow happening the image measures the size of the candlestick. According to our shooting star trading scheme, we should seek a target equal to threefold the size of the pattern.
Profits Raining
Thus, we practice the size of the pattern threefold starting from the bring dow candela wick. This is how we get the big blue arrow, which points out the minimum object of our trading strategy.
In order to maximize our profits, we need to stay in the trade until the Mary Leontyne Pric action closes a candle beyond the stripped-down target.
Along the way fine-tune, the price creates one chastening during the bearish move. The downward body process then resumes and 18 periods afterwards we short HPQ, the price action closes a taper down the stairs the minimum fair game of the pattern.
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Exit
Luckily, this candle is relatively big and goes way beyond the minimum butt. A perfect chance to exit.
As you see, the shooting star taper pattern gives us an indicant that the trend might black eye. This creates a nice premise to short HP right in the beginning of an emerging bearish trend. Despite the littler correction en route down, the shooting star reaches the direct of three times the size of the candlestick.
Example #2
Let's now try this strategy one more time along another shot star trading example:
We now have the 1-minute chart of Apple from Dec 22, 2015.
The chart starts with a price step-up – Malus pumila creates higher highs and higher lows. En route up, the price action forms a meteor candlestick pattern happening the graph (the green circulate on the image).
Today we possess a reason to consider that the price action could be reversed. We wait to see if the next candle is going to confirm the authenticity of the shooting star reversal design.
Entry
Fortunately, the next candle is bearish and breaks the low of our shooting star candle on the chart. This gives us a strong pessimistic betoken and we brusque Apple at the end of the bearish taper. At the one time, we place a stop loss ordinate at the highest point of the shooting star – above the upper candlewick.
Now, the trade is protected against rapid terms moves contrary to our trade.
Raining Net profit
The blue arrows on the image measure and apply threefold the size of the shooting star cd pattern. After we short Malus pumila, the price enters a downtrend.
After the first bearish impulse connected the chart, the toll creates a vagabon between $107.30 and $107.40 per share. The range is then upset and the cost activity creates a newly bearish impulse happening the graph.
This nerve impulse leads the price to complete a total bearish move of three times the sizing of the shooting star pattern. This is the minimum target for our trade and we close the position.
Another successful trade in the books.
Recap
- The shooting star waterfall into the "Hammering" candle crime syndicate.
- There are iii basic tricks for trading the shooting star candlestick figure:
- Sell the security aft the initiation of a optimistic curve, a shot star candle, and a bearish confirmation candle.
- Put a stop loss right in a higher place the upper candlewick of the shooting star topology envision.
- Stay in the short trade for a pessimistic price move equal to leastwise threefold the size up of the shooting star taper including the upper and the lower candlewick.
- This shooting star trading strategy contains about 3:1 Get ahead-Loss ratio.
How to Praxis This Scheme
If you find yourself overwhelmed or new to candlestick patterns, the best way to get a firm grasp of the strategies is through debate practice.
There is no more efficient way of life of doing that than in a trading simulator with a realistic trading environment.
To it end, we've put across together a handful of reference guides for the best optimistic and bearish candlestick patterns to service guide you along the way. So, be sure to check those out and download our swindle sheets.
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Source: https://tradingsim.com/blog/shooting-star/
Posted by: caldwelltherling.blogspot.com
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