In the world of forex trading, there are a number of technical indicators and patterns that traders use to try and predict future price movements. One such pattern is the shooting star, which is a candlestick pattern that can indicate a potential reversal in the market.
A shooting star is a type of candlestick pattern that is formed when a candle has a small real body (i.e. the difference between the opening and closing price of the candle is small) and a long upper shadow. The upper shadow represents the high price of the candle, while the lower shadow represents the low price. The small real body indicates that there was little movement between the opening and closing price of the candle.
The shooting star pattern is so-named because it looks like a shooting star, with a long upper shadow and a small body. However, in forex trading, the pattern is also sometimes referred to as a pin bar or a hammer.
To identify a shooting star pattern, traders look for a candle with a small real body and a long upper shadow. The candle should also be preceded by an uptrend. This indicates that buyers were in control of the market, pushing prices up. However, during the formation of the shooting star, sellers were able to take control, causing the price to fall from its high point.
When a shooting star pattern is identified, it can indicate a potential reversal in the market. This is because the pattern suggests that sellers are gaining control, and that the uptrend may be coming to an end. The long upper shadow indicates that buyers were unable to push the price any higher, and that the sellers were able to push the price back down.
Traders will often look for confirmation of the shooting star pattern before taking any action. One way to do this is to wait for a bearish candle to form after the shooting star. This confirms that the sellers are gaining control, and that the uptrend may be over.
Once the shooting star pattern has been confirmed, traders may decide to enter a short position, betting that the price will continue to fall. Alternatively, they may decide to exit any long positions they have, to avoid any potential losses.
Of course, as with any technical indicator or pattern, the shooting star is not foolproof. While it can be a useful tool for predicting potential reversals in the market, it is important to remember that forex trading is inherently risky, and that there are always factors outside of a trader’s control that can affect the market.
Nevertheless, the shooting star pattern is a valuable addition to any forex trader’s toolkit. By using this pattern in conjunction with other technical indicators and market analysis, traders may be able to increase their chances of making profitable trades.
