Price Action Candlesticks Patterns

Knowledge of current economic events is a fundamental element of effective trading. In the case of currency pairs and indices, the ability to use the calendar is already satisfactory. Nevertheless, to assess market sentiment, it is worth following current events. In the case of instruments such as shares, tracking information from companies is a necessity.

Shooting Star

Shooting Star Formation: Potential Reversal Signal in Uptrend

Introduction: The "Shooting Star" formation is one of the significant patterns in technical analysis that often signals a potential reversal of the uptrend in the financial market. In this article, we will take a closer look at the "Shooting Star" formation, its structure, and how one can execute trades using this signal.

What does the "Shooting Star" formation look like? The "Shooting Star" formation is a single candle characterized by the following features:

Long Upper Shadow: The most characteristic feature of this formation is a long upper shadow, which is at least twice as long as the candle body.
Small Candle Body: The candle body is usually small and located at the bottom of the range.
Lack or very short Lower Shadow: The lower shadow is usually absent or very short, indicating that the closing price is close to the session's low.

Key Information about the "Shooting Star" Formation:

The "Shooting Star" formation signals potential weakening of the uptrend and possible takeover by bears.
It appears at the top of an uptrend and may be an early warning of a market direction change.
The longer the upper shadow, the stronger the reversal signal.

How to Trade Based on the "Shooting Star" Formation?

Market Context: Before entering a trade based on the "Shooting Star" formation, it is important to assess the market context. This formation is more significant when it appears after a long uptrend or near significant resistance levels.
Signal Confirmation: It is important to confirm the "Shooting Star" formation with subsequent candles. Other technical analysis tools, such as oscillators or trend lines, can provide additional confirmation.
Placing Sell Orders: After the "Shooting Star" formation occurs and is confirmed by subsequent candles, traders may consider placing sell orders at the opening of the next session.
Setting Stop Loss: Stop loss can be placed above the upper shadow of the "Shooting Star" formation to minimize the risk of loss if the reversal signal is incorrect.
Taking Profit: Traders can apply various profit management strategies, such as setting profit targets based on support and resistance levels or monitoring subsequent candles for confirmation of further decline.

Summary: The "Shooting Star" formation is a significant signal of potential reversal of the uptrend in the financial market. However, as always, it is important to consider the market context and confirm the signal with other technical analysis tools before making an investment decision.