Shooting Star is one of the popular reversal candlestick patterns used by many traders. And if we locate the right position to trade this model, it will be of great value.

First, let's repeat this candlestick pattern a bit.

The Shooting Star candlestick pattern is a bearish reversal candlestick pattern with a long upper tail, small real body, and small lower tail. This pattern is only reliable when they appear at the end of an uptrend. As shown below:


And the picture below shows the real shooting star candlestick pattern:


Now we get into the steps to build a complete strategy for trading this candlestick pattern.


SHOOTING STAR TRADING STRATEGY

Step 1: Add the CMF (Chaikin Money Flow) indicator to the chart

This is the indicator we use to confirm the validity of the shooting star candlestick pattern. As shown below:


Step 2: The Shooting Star candle appears after a strong uptrend

There are 2 important points when the shooting star candle appears after a strong uptrend:
  • The first part of the trend should have slow and steady up movement
  • The last part of the trend needs to be more volatile and should happen before the shooting star candle comes out
As shown below:


Step 3: The CMF indicator must be below the zero lines when the shooting star candle appears

CMF is a very retired indicator in measuring the price action at the accumulation and distribution stage of the market. When CMF is below the zero lines, it shows that sellers are dominant in the market.

Note that the shooting star candlestick with a bearish real body is stronger than the bullish real body. Even though this is a bullish real body candle, it is still a good pattern to trade as all other conditions are fulfilled.


Step 4: Open a short position when the price breaks the lowest price of the shooting star candlestick pattern

See the picture below:


Step 5: Place the stop loss above the top of the shooting star candle. The take profit point is at the price zone of the first part of the trend

The stop loss is quite simple, right, most of the price action candlestick patterns we have the same stop-loss rules.

Regarding the stop loss, at the price zone where the uptrend moved slowly, ie the first part of the previous uptrend, is a good place to take profit.



CONCLUDE

This is a very simple trading strategy and the shooting star candlestick's signal is also reliable. This strategy has a good RR ratio, but it is important that you get support from the appropriate market conditions and confirmation signals from the technical indicators.

The shooting star candlestick pattern has many noise signals, so capital management is a very important factor to help you profit from this strategy.

The steps for implementing the strategy are very simple. However, if this candlestick pattern appears as a strong resistance, the sell signal will be much stronger.