How to Trade Shooting Star explained by professional Forex trading experts the “How to Trade Shooting Star” FX trading team.
How to Trade Shooting Star?
A shooting star formation is a bearish reversal pattern that consists of just one candle. It is formed when the price is pushed higher and immediately rejected lower so that it leaves behind a long wick to the upside. The long wick should take up at least half of the total length of the candle.
Additionally, the closing price should be lower than the opening price creating a red candle. As you can see, this creates an overall bearish structure because prices were unable to sustain their higher trade.
Trading the Shooting Star
Trading this reversal pattern is fairly simple. First, the implication is for lower prices therefore we want to look for entries to short. Since the prices were previously rejected at the high of the shooting star, we will establish our stop loss about 10-20 pips above the high of the said candlestick.
The entry can take place in a couple of manners. First, a trader could simply enter on the open of the next candle. Or, if the trader was more conservative and wanted to capture a better risk-to-reward ratio, we can trade a retest of the wick.
Retests of the wick tend to occur when the wick is longer than normal. Oftentimes, prices will come back and retrace upward a portion of the long wick. A trader recognizing this might wait to enter around the middle of the wick rather than enter immediately after the shooting star candle forms. This means the trader is entering a short trade at a higher price and with a tighter stop loss reducing risk.
Regardless of the entry mechanism, the stop loss will remain the same which is about 10-20 pips above the shooting star candle.
Regarding profit targets, we teach in our courses to take profit at least twice the distance as your stop loss. So if your stop loss is about 90 pips, then look for at least 180 pips of profit potential. This means we are establishing a 1-to-2 risk-to-reward ratio which falls in line with the Traits of Successful Traders research.
How to Trade Shooting Star Conclusion
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