#SHOOTING STAR CHART PATTERN HOW TO#

These two distinctions are important because they dictate which risk/reward profile to apply. It becomes a failed breakout or вЂfake outвЂ™ pattern when youвЂ™re not looking for a trend reversal, but just one counter-trend swing downward when the breakout fails. This means youвЂ™re not only looking for a significant initial counter-trend move when the breakout fails but for a new, opposite-direction trend to begin afterward. The pattern is of the trend termination variety when youвЂ™re looking to benefit from an actual reversal of the trend. This is why itвЂ™s essential to define your preferred risk/reward when trading such patterns.

ItвЂ™s a catchall term for reversal-style trading patterns catalyzed by the shooting star candlestick. The shooting star pattern has no real official definition, and its utility is more in the beholderвЂ™s eyes. The shooting star pattern can be a failed breakout or trend termination/reversal pattern, depending on the structure of the trend and preferred risk/reward ratios. In his backtesting of the pattern on daily charts, he found a success rate of 59%, which he considers вЂњnear random.вЂќ What Type of Pattern is the Shooting Star? However, if thereвЂ™s one person that is best for the job, itвЂ™s chart pattern expert Thomas Bulkowski, author of Encyclopedia of Chart Patterns. Programmatic pattern identification doesnвЂ™t know the context and probably spits out several false positives. Thus, itвЂ™s challenging to backtest these patterns, primarily when you rely on a computer to identify the patterns. What is a shooting star to some, may not be to others.

#SHOOTING STAR CHART PATTERN HOW TO#

In the next section of this article, weвЂ™ll review how to analyze the market structure and context of a trading pattern.Д¬andlestick patterns are often in the eye of the beholder. Situations like these are typically where newer traders get into trouble they know how to identify a pattern, but donвЂ™t know how to analyze the market structure around to decide if the trade is high-probability. While the above chart of DocuSign (NASDAQ:DOCU) technically meets the definition of a shooting star pattern, this is one of the worst examples. Here is a bad example of a Shooting Star Pattern:

The stock had trouble breaching the high multiple times before the shooting star candlestick.

The prevailing trend was downward, but the push to highs occurred during a short-term uptrend.

While those who took this trade certainly had mixed results based on their exit strategy (the market rallied just days after the price drop), this setup had several things going for it:

Here is an example of a Shooting Star Pattern: HereвЂ™s an example of the candlestick itself: This pattern is identical to the inverted hammer pattern, but the inverted hammer pattern looks the below candlestick in a downtrend. Usually, price hits the new high intraday and quickly sells off from there. The вЂstoryвЂ™ of this candlestick is a push to new highs, which is staunchly and quickly rejected. The shooting star candlestick is defined by a small body and a long upper shadow, with the shadow typically being at least twice the size of the body.

Explain both the shooting star pattern and candlestick.

Trading this strategy aims to take advantage of the fact that most breakouts fail, and helps you identify some clues of a breakout with a high probability of failure. At its core, the shooting star is a failed breakout or вЂњfake outвЂќ pattern. The shooting star pattern is a reversal candlestick pattern.

Shooting star chart pattern