The Art of Candlestick Trading: How to Spot Market Turns EarlyBuckle up, TradingViewers! It's time to unravel the ancient secrets of candlestick patterns. Originating from an 18th-century Japanese rice trader, these patterns aren't simply red and green elements on your trading charts—they are the Rosetta Stone of market sentiment, offering insights into the highs and lows and the middle ground of buyers and sellers’ dealmaking.
If you’re ready to crack the code of the market from a technical standpoint and go inside the minds of bulls and bears, let’s light this candle!
Understanding the Basics: The Candlestick Construction
First things first, let’s get the basics hammered out. A candlestick (or Candle in your TradingView Supercharts panel) displays four key pieces of information: the open, close, high, and low prices for a particular trading period. It might be 1 minute, 4 hours, a day or a week — candlesticks are available on every time frame. Here’s the breakdown:
The Body : This is the chunky part of the candle. If the close is above the open, the body is usually colored in white or green, representing a bullish session. If the close is below the open, the color is usually black or red, indicating a bearish session.
The Wicks (or Shadows) : These are the thin lines poking out of the body, showing the high and low prices during the session. They tell tales of price extremes and rejections.
Understanding the interplay between the body and the wicks will give you insight into market dynamics. It’s like watching a mini-drama play out over the trading day.
Key Candlestick Patterns and What They Mean
Now onto the fun part — candlestick formations and patterns may help you spot market turns (or continuations) early in the cycle.
The Doji : This little guy is like the market’s way of throwing up its hands and declaring a truce between buyers and sellers. The open and close are virtually the same, painting a cross or plus sign shape. It signals indecision, which could mean a reversal or a continuation, depending on the context. See a Doji after a long uptrend? Might be time to brace for a downturn.
The Hammer and the Hanging Man : These candles have small bodies, little to no upper wick, and long lower wicks. A Hammer usually forms during a downtrend, suggesting a potential reversal to the upside. The Hanging Man, its evil twin, appears during an uptrend and warns of a potential drop.
Bullish and Bearish Engulfing: These are the bullies of candlestick patterns. A Bullish Engulfing pattern happens when a small bearish candle is followed by a large bullish candle that completely engulfs the prior candle's body — suggesting a strong turn to the bulls. Bearish Engulfing is the opposite, with a small bullish candle followed by a big bearish one, hinting that bears might be taking control of the wheel.
The Morning Star and the Evening Star : These are three-candle patterns signaling major shifts. The Morning Star — a bullish reversal pattern — consists of a bearish candle, a small-bodied middle candle, and a long bullish candle. Think the dawn of new bullish momentum. The Evening Star, the bearish counterpart, indicates the onset of bearish momentum, as if the sun is setting on bullish prices.
The Shooting Star and the Inverted Hammer : Last but not least, these candles indicate rejection of higher prices (Shooting Star) or lower prices (Inverted Hammer). Both feature small bodies, long upper wicks, and little to no lower wick. They flag price exhaustion and potential reversals.
Trading Candlestick Patterns: Tips for Profitable Entries
Context is King : Always interpret candlestick patterns within the larger market context. A Bullish Engulfing pattern at a key support level is more likely to pan out than one in no-man’s-land.
Volume Validates : A candlestick pattern with high trading volume gives a stronger signal. It’s like the market shouting, “Hey, I really mean this move!”
Confirm with Other Indicators : Don’t rely solely on candlesticks, though. Use them in conjunction with other technical tools like RSI, MACD, or moving averages to confirm signals.
Wrapping It Up
Candlestick patterns give you a sense for the market’s pulse and offer insights into its moment-to-moment sentiment — is it overreacting or staying too tight-lipped. Mastering candlesticks can elevate your trading by helping you spot trend reversals and continuations. These patterns aren’t foolproof — they are powerful tools in your trading toolkit but require additional work, knowledge and context to give them a higher probability of confirmation.
It’s time to light up those charts and let the candlesticks illuminate your trading path to some good profits!
Shooting Star
Learn To Trade Technical Analysis Hammer & Shooting StarHey Traders today I wanted to go over what I believe is one of the best ways to trade any market with Japanese Candlesticks using hammers and shooting stars. Normally you want the wick of the candle to be at least twice the size of the body of the candle. Alot of times they can lead to explosive moves in the markets. So lets dive in and see how to use this powerful technique in your trading arsenal.
Enjoy!
Trade Well,
Clifford
SHOOTING STAR IN NIFTY 50SHOOTING STAR FORMATION IN UPTREND SUGGEST EITHER THIS IS CORRECTION OR HALT IN TREND WE CAN SEE UP MOVE IN FUTURE BECAUSE BEARS WERE UNABLE TO BREAK 11300 SUPPORT BULLS ARE STRONG THERE.
EDUCATION PURPOSE ONLY.
CRYPTO INVERTED HAMMER/SHOOTING STAR STRATEGIES This is the Shooting Star version of the strategy. Inverted Hammer just opposite.
Step #1: Attach the Chaikin Money Flow Indicator on your Preferred Time Frame
Start first by preparing your charts ready for the battle. Simply attach the Chaikin Money Flow indicator on your favorite time frame. This is the only additional technical tool we’re going to use to confirm the validity of the bearish shooting star pattern.
Using the CMF indicator, we accomplish one major thing.
The validity of the bearish shooting star will be confirmed or invalidate instantly as soon as the bearish inverted hammer develops on our Bitcoin candlestick chart. This means that the price won’t move any further from the ideal entry price.
Step #2: The Shooting Star Candle should come after a strong bullish trend
The location, or where the shooting star candlestick develops, matters a lot.
This whole ingredient is what makes the bearish shooting star candle performs with such a high degree of accuracy. We need a strong uptrend that has two important features:
The first part of the trend is a slow and steady move to the upside
The last part of the uptrend, prior to the shooting star candle, needs to be more volatile.
Basically, we’re looking for a full-blown market top where the bulls are exhausted and reach a climax point.
Step #3: The CMF indicator must be below the 0 lines once the bearish shooting star candle develops
Chaikin Money Flow is a great tool to read and measure institutional accumulation-distribution activity in any market. Basically, a CMF reading below the zero line shows that the sellers have the upper hand and they took control of the market.
Notice that the bearish shooting star spotted satisfies all the requirements of a bearish inverted hammer. The shadows are at least two times longer than the body, small body, and very little lower shadow. This candle would have been more powerful if the closing price is below the opening price.
But it’s still a good pattern to trade due to all the other features.
Now, it’s time to highlight how to find the right entry point for bearish shooting star candlestick.
Step #4: Sell once we break the low of the Shooting Star Candle
Simply place a limit sell order below the low of the shooting star. Nothing complicated about our entry strategy. It’s in line with the textbook rule.
Step #5: Hide SL above the high of the Shooting Star Candle.
Simply hide your protective SL above the high of the shooting star pattern. You can add a buffer of a few pips if you wish to protect against possible false breakouts.
The full-blown top creates the necessary space where the bears would find no level of support to stop the drop. The last stage of a trend has been always more volatile. When combined with the reversal shooting star pattern, it makes for a killer trading strategy.
Step #6: TP when we get inside the slow part of the prevailing trend.
In this regard when the price reaches the portion where the prevailing uptrend was moving slow, we take profits. That’s where the price will find some hostility to advance further on the downside. We want to clear out our position when that happens.
Conclusion – Best Shooting Star Strategy
The best shooting star strategy is one of the most reliable and efficient ways to trade trend reversals. This single candlestick pattern can offer you one of the most attractive risks to reward ratios. You can risk between 10 and 30 pips and look to gain between 200 and 300 pips which gives you a profit of 20x or 30x the risk taken.
Take that into consideration next time when you’re able to find a shooting star candle that satisfies all the rules outlined in this trading strategy guide.
A lot of traders will warn you against reversal trading. However, finding tops in the market and trading reversals can be done successfully if you have a proven methodology like our shooting star candle strategy.
Past history candlestick analysis for Hartalega
On March 8, 2018, an Inverted Hammer + Bullish Engulfing appeared, signifying a change to the down trend. This is further confirmed by the support line in blue.
Stock rallied for roughly a month plus until April 12, where a Hanging Man appeared (Note the Hanging Man is not as potent as a Shooting Star, but it still gives the signal that the bullish trend is coming to an end). The trend then start to change.
Stock goes downwards and tumbled, until a bullish engulfing pattern emerges on April 25 - 26. Interestingly, this happened 3 times! Triple bullish engulfing pattern! This also serves as a support line, which supported the price level on June 28 - 29.
Stock rallied up and hit a bearish Harami pattern on June 11 - 12, signalling that bull has lost it's momentum. Stock drops and hit the support line where a bullish engulfing pattern appears, and then goes upwards until it hits a Doji on July 2. Market comes to a neutral tone and market is unsure to go up or go down.. in the end it goes downwards.
Price could go further down until it hits the support line and change upwards, depending on the candlestick formation at that time. If it goes down it would hit the second support line formed by the inverted hammer.
Notice the MACD histogram is showing an upward trend, signifying an uptrend of price.
Price Action Lesson 6: Shooting Star Candlestick Pattern Def.Shooting Star Candlestick Pattern Definition:
When the price highly increases during a day, but decreases to what it was at the beginning of the day or even lower, a considerable bearish retracement is occurred.
The candlestick of this price action in the daily time frame is a Shooting Star.
The Shooting Star in the daily time frame is a very strong signal for the possibility of more decrease in price during next days.
Example: The chart shows the price of Gold in the time frame of 30 minutes. On Sep 08, 2017 the price significantly increased from 1348.80 to 1357.53, then it decreased more, and at the end of the day to it was closed at 1346.07.
The corresponding Shooting Star candlestick of this price movement in the daily time frame is also drawn on the chart to better describe the concept.
Price Action Lesson 7: Conditions of a Perfect Shooting StarConditions of a Perfect Shooting Star:
Body is short.
The height of the candlestick (the difference between high and low price) is tall enough and it's more than the Daily ATR(264). The taller the Candlestick is, the stronger the Shooting Star.
The upper shadow (also known as upper wick or tail is the distance between the high price and the close or open price, whichever is higher) should be very tall, over than 75 percent of the Daily ATR(264) is better.
The lower shadow (also called bottom wick or tail is the distance between the low price and the close or open price, whichever is lower) is nonexistent or very short. It should be less than 25 percent of the Daily ATR(264).
The Shooting Star with the bearish body is stronger than the one with the bullish body.
- The picture shows a perfect Shooting Star candlestick .
As seen, the height of the candlestick is tall, but the body is very short. Also, the upper shadow is very tall and the lower shadow is very short.
The close price is lower than open price, therefore the body of this Shooting Star is bearish , and the strength is very high.
My latest Short Term Sell Trade Explained #forex In response for your requests guys to explain the rational behind the live trade we took on GBPCHF. Here is the explanation.
On the left hand side daily chart, the price started the bearish behavior on the 78.6 retracement level for the overall bearish wave as shown on chart. As it formed two major bearish shooting star candles.
That was not enough for me to initiate the trade so i moved to the lower time frame(4-hour) for the final confirmation. The price has indeed broken back below the prior high at 1.2868 and below the hanging man candle. That was accompanied by bearish divergence on RSI and that assured that the trade is a high probability one.
If you were following my updates on the channel, you would know that i put a limit short order as shown on chart. The targets was just reached minutes ago for 157 pips gain. Adding to my account 4.37% gain this month.
Best of luck and keep posted.
