In the first part of this guide, we covered the basics of shooting star candlesticks, including how to identify them, their psychological meaning, and how to trade shooting stars in your own strategy.
Now let’s dive into more advanced shooting star techniques, strategies, and tactics to give you an edge in trading this pattern.
Using Shooting Stars with Chart Patterns
Shooting stars don’t exist in isolation. Combining them with chart patterns can provide a more robust trading approach. Here are some chart patterns that work well with the shooting star:
Wedges
A shooting star after a wedge breakdown can signal the start of a new downtrend. Use the pattern’s support and resistance lines for stop placement.
Double Tops
A shooting star after a double top rejection on the second peak helps confirm the pattern and the start of a downtrend.
Head and Shoulders
The shooting star can mark the right shoulder of a head and shoulders pattern and guide entries.
Flags
Trading the shooting star after a bearish flag breakout takes advantage of the momentum from both patterns.
Channels
A shooting star at the upper channel line could precede the price dropping out of the bottom of the channel.
Analyzing how a shooting star aligns with chart pattern support and resistance provides high probability setups.
Now let’s look at trading strategies that incorporate shooting stars:
Shooting Star Trading Strategies and Tactics
Many different trading strategies and tactics can benefit from the shooting star pattern. Here are a few approaches:
Shooting Star Pullback
After a shooting star at resistance, buy the pullback to the low of the candle once a support level is established.
Shooting Star Breakout Fade
Short sell shooting star breakouts below support, targeting quick rebounds back into the range.
Shooting Star Fibonacci Retracements
After a shooting star rejection, short counter-trend bounces at Fib levels like the 50% or 61.8% retracements.
Shooting Star Divergences
Combine shooting stars with bullish RSI or MACD divergences for high probability reversal trades.
Shooting Star Trend Line Bounces
Look for previous uptrend lines to reverse into resistance lines. Short bearish bounces off the trend lines.
Shooting Star Moving Average Crossovers
Use shooting stars at a moving average resistance as an early entry before confirmation of a MA crossover.
There are many ways traders can creatively implement shooting stars based on their own style and strategy.
Next let’s examine how to effectively manage stops and targets when trading shooting stars.
Managing Risk with Shooting Star Stops and Targets
Smart risk management is crucial when trading shooting stars to avoid excessive losses on false signals. Follow these guidelines for stops and targets:
Determine Exit Stops
Place initial stop loss orders below the shooting star low or swing low. Move stops to breakeven after price progress in the direction of the trade.
Set Realistic Profit Targets
Base targets off previous support/resistance levels, chart patterns, or Fibonacci retracements. Move targets to lock in profits as the trade moves favorably.
Use Multiple Target Exits
Consider taking partial profits at the 50% or 61.8% Fib level, then letting the remainder of the position ride to reach further targets.
Adjust Stops to Account for Volatility
Give price action room to breathe on volatile assets by using wider stops of 2-3x average true range (ATR).
Avoid Overtrading
Stick to your plan and avoid impulsive stops and reversals which can lead to overtrading.
Employ Good Account Management
Only risk 1-3% of capital per trade. Re-evaluate shooting star signals which would risk more than this per position.
With effective trade planning and risk controls, shooting stars can thrive under a structured trading approach.
Next let’s answer some more advanced shooting star questions:
Additional Shooting Star FAQs
Here are some more answers to commonly asked questions:
Q: What percentage of shooting stars actually reverse the trend?
A: Statistically, without confirmation around 70% of shooting stars fizzle out. With confirmation signals, performance improves markedly to 85% or better.
Q: Can you filter false shooting star signals with volume?
A: Yes, comparing current volume to past averages and looking for climactic volume spikes on the candle can reduce false signals.
Q: Is there an ideal time of day or week for shooting stars?
A: Shooting stars that form in the mid-late afternoon going into the daily close can have a higher chance of follow through continuation.
Q: What is the average price retracement after a valid shooting star signal?
A: Retracements after confirmed shooting stars tend to reach key Fibonacci levels like the 50% pullback or 61.8% golden ratio.
And those cover some key shooting star questions we’re often asked.
Now let’s wrap up with final tips for trading the pattern successfully.
Conclusion and Tips for Trading Shooting Stars
In summary, here are some final tips for effectively trading shooting star candlesticks:
- Confirm signals with other technical indicators whenever possible
- Focus on shooting stars at key resistance levels or after uptrends
- Combine with chart patterns, Fibonacci, and candlestick analysis
- Wait for a close below the shooting star for bearish confirmation
- Employ prudent risk and account management for long-term success
Learning to integrate shooting stars into a complete trading plan alongside other confluence factors can give you a statistical edge. But always remain disciplined, patient, and risk-aware.
With this comprehensive shooting star guide, you now have the knowledge to trade this high probability candlestick pattern. Just remember to stick to high probability setups.
I wish you the best of luck in your trading journey ahead!
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