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\n\tA 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.<\/p>\n
\n\tAdditionally, 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.<\/p>\n
\n\tTrading the Shooting Star<\/strong><\/p>\n \n\tTrading 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.<\/p>\n \n\tThe 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.<\/p>\n \n\tRetests 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.<\/p>\n \n\tRegardless of the entry mechanism, the stop loss will remain the same which is about 10-20 pips above the shooting star candle.<\/p>\n \n\tRegarding 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.<\/p>\n \n\tTrading the AUDJPY<\/span> Shooting Star<\/strong><\/p>\n \n\tOn Friday, November 2, the AUDJPY<\/span> produced a shooting star reversal pattern on the daily chart.<\/p>\n \n\t \n\tWhat makes this set up appealing is that it forms near 2 other levels of horizontal resistance.<\/p>\n \n\tTherefore, a strong resistance zone is created. As prices approached this resistance zone, the buyers stopped buying and the sellers started selling which left a shooting star candle pattern in its wake.<\/p>\n \n\t \n\tSince the AUDJPY<\/span> has been trading in a range between 79.70 and 83.50, consider an entry to short near the top of the range near 83.15 with a stop loss just above the shooting star high near 84.05.<\/p>\n \n\tWe’ll look to take profits near the bottom of the range at 80.15. This means we are risking 90 pips for a potential reward of 300 pips. This yields a 1-to-3 risk to reward ratio.<\/p>\n \n\t—Written by Jeremy Wagner, Head Trading Instructor, DailyFX<\/span> Education<\/p>\n \n\tThe views expressed are not FNArena's<\/span> (see our disclaimer).<\/em><\/p>\n \n\tFor real time news and analysis, please visit http:\/\/www.dailyfx.com\/real_time_news<\/em><\/p>\n \n\tDailyFX<\/span> provides forex<\/span> news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM<\/span>.<\/em><\/p>\n \n\twww.dailyfx.com<\/em><\/p>\n \n\tDisclaimer<\/strong><\/em><\/p>\n \n\tForex<\/span> Capital Markets is headquartered at Financial Square 32 Old Slip, 10th<\/span> Floor, New York, NY 10005 USA.<\/u><\/em><\/p>\n \n\tTrading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before you decide to trade the foreign exchange products offered by Forex<\/span> Capital Markets, LLC, Forex<\/span> Capital Markets Limited, inclusive of all EU branches, FXCM<\/span> Asia Limited, or FXCM<\/span> Australia Limited, any affiliates of aforementioned firms, or other firms under the FXCM<\/span> group of companies [collectively “FXCM<\/span><\/span><\/span><\/span> Group”] you should carefully consider your objectives, financial situation, needs and level of experience. If you decide to trade foreign exchange products offered by FXCM<\/span> Australia Limited you must read and understand the Financial Services Guide and the Product Disclosure Statement. FXCM<\/span> Group may provide general market information and commentary which is not intended to be investment advice and the content of this email must not be construed as personal advice. By trading, you could sustain a total loss of your deposited funds and therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading in foreign exchange products. Foreign exchange products are only suitable for those customers who fully understand the market risk. FXCM<\/span> recommends you seek advice from a separate financial advisor.<\/em><\/p>\n \n\tFXCM<\/span> Group assumes no liability for errors, inaccuracies or omissions in these materials and does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXCM<\/span> Group shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. This email is not a solicitation to buy or sell currency. All information contained in this e-mail is strictly confidential and is only intended for use by the recipient. All e-mail sent to or from this address will be received by the FXCM<\/span> corporate e-mail system and is subject to archival and review by someone other than the recipient.”<\/em><\/p>\n \n\tTechnical limitations<\/strong><\/em><\/p>\n \n\tIf you are reading this story through a third party distribution channel and you cannot see charts included<\/span>, we apologise<\/span>, but technical limitations are to blame.<\/strong><\/p>\n![\"\"](\"http:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/dailyfx6-11a2.jpg\")
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