![]() 3 Steps For how to use the Shooting Star or Hammer candle to buy/sell stocks This implies that the price is about to reverse with even bigger strength. In such cases, the shooting star candle is likely to have an even bigger upper candlewick. ![]() This creates exponential bullish pressure on the chart. It is important to mention that the shooting star candlestick pattern is even more reliable when it develops after three consecutive bullish candles. This panic long selling and short selling leads to a sharp reversal in the price action, thus generating a small candlestick body on the chart. As this euphoric moment begins to set in, short traders begin to sell the stock on a flurry of buy orders.Īt this point, the longs who were late to the party begin to get scared and start to sell out as well. The psychology of the trade has many layers of complexity.įirst, buyers are enjoying their gains as the stock shoots to a climactic high. One of the reasons for this is the unique structure – a small body with a high upper candlewick. The shooting star candlestick is considered one of the most reliable candlestick patterns. You can enter there, then set your stop at the high of the hammer candle, or the shooting star candle, whichever you prefer. On the chart above we get that hard break just two candles later. In order to trade the hammer candle, you want to wait for the low of the wick to be broken to the downside. As we will discuss in a moment, the psychology behind these candles are everything. The reason we point this out is that often a hammer candle will precede a trend reversal in the same way that a shooting star will. Noice the red candle that follows immediately after the annotated shooting start? That's right, it is a hammer candle. Look once again at the image of the AMC chart above. ![]() Note that we are aiming for 3x the width of the shooting star candle: AMC bearish shooting star candlestick pattern The expectation for the profit potential for the shooting star is 3:1 the size of the candlestick. Once you are able to identify the shooting star, you should look to open a short position on a break of the low of the candle. For this reason, traders use this candle to enter short trades on the assumption that the bullish move is running out of steam. If a stock is in a bullish uptrend and you identify a shooting star candle, then there is a solid chance that the trend will reverse. How to trade the shooting star candlestick pattern It simply needs to show that there was selling pressure coming at the highs or lows of the reversal. In other words, the wick (tail) doesn't have to point in the opposite direction of the new trend. That being said, you can also have variations of the two.įor example, you can have a hammer candlestick pattern at the top of an uptrend which will also signal a reversal. The inverted hammer occurs at the end of a down trend. The shooting star candle is a reversal pattern of an upwards price move.
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