Shooting Star Candlestick: How to Trade, Red vs Green and Quick Tips.

What Is a Shooting Star?

Shooting star is a bearish reversal candlestick that forms after an uptrend. Traders recognize it by its small body and long upper shadow. It is a candlestick based on technical analysis. It forms at a resistance or selling zone.

The shooting star candlestick pattern forms when the market is in an uptrend. At some point, it reaches a selling zone where the price shows selling pressure but still rises. However, by the end of the session, the price closes near its opening price, creating the shooting star formation.

What a Shooting Star will show us

The shooting star candlestick shows that when the price forms a new high, the buyers are unable to close the price near this new high. Sellers confidently push the price lower. And the candlestick closes near its opening price. This causes other sellers to become active and start selling with confidence, leading to the beginning of a new trend in the market.

How to Spot Shooting Star with Resistance Pattern

There are two scenarios for spotting a shooting star candlestick at a resistance level. Best to consider both scenarios together for trading with a shooting star candlestick. It's acceptable if the candlestick is forming at a new high or at a clear resistance level. It is important to understand this to avoid being trapped by formations that occur in incorrect areas and to protect yourself as a trader.

1st Scenario:

When the price directly reaches a clear resistance level, a shooting star's shadow will touch the resistance level and form. This provides a direct and clear signal for selling, and traders trade with confidence. Look at this image to better understand how it looks.

2nd Scenario:

Here, it often happens that a resistance level forms at a psychological number like 100, 150, or 200. After touching this price level, the price shows rejection, and any bearish candlestick may form here, such as a Shooting star, Hanging man, tweezer top, and others. If a shooting star has formed, after some time you'll see a confirmation candlestick, where you can take entry into the trade.

Formation of Shooting Star

The formation of a shooting star happens when the price has risen so high that people in long positions start making profits, leading to profit booking, and the price shows rejection. This can also happen when the price is near a psychological number. In this, after the candlestick opens, the price moves up, but by the time it closes, it comes back near its opening price, forming a shooting star candlestick.

How Can You Trade the Shooting Star?

To trade with a shooting star, you need to pay attention to a few things, such as the place of formation and how well the candlestick has formed. The color of the candlestick doesn't matter much, but if a red shooting star forms, it's an advantage, nothing more. Now, if the formation place is correct and the candlestick is well-formed, let's understand how to trade with it.

Entry:

Entry in this candlestick should not be made right when it forms. You should enter the trade once the candlestick is fully formed and the next candlestick shows bearish momentum. You can enter the trade when the next candlestick breaks below the low of the shooting star, or if the next candlestick closes below the low of the shooting star. The choice is yours.

Stop Loss:

For the stop loss, you can simply set it above the high of the candlestick. Sometimes, even after breaking the high, the market may still go down. For this, you need to backtest the candlestick to understand its movement better.

Target:

There is no fixed target with this types of candlestick, so you can set multiple targets and book partial profits gradually. You can book all your profits at one target or distribute them across different targets.

What does Red Shooting Star indicate?

A red shooting star candlestick shows that there are very few buyers, and the sellers are more active. Now, understand this: If you want to sell, which color of candlestick would you prefer? Red color, because it shows selling and, psychologically, it gives confidence to sellers. So, a red shooting star candlestick gives sellers confidence. However, if you want to trade with this candlestick, you need to wait for the next candlestick for confirmation.

What does Green Shooting Star tell?

A green shooting star candlestick indicates that buyers are still active. Simply put, if the candlestick is green, it means buyers are active. However, when you look at the shadows, you'll see that sellers are more active than buyers in this candlestick. That's why I said you should enter the trade with this candlestick only when the next candlestick gives you an entry signal, which will happen if it breaks below the low of the shooting star.

Example of How to Use the Shooting Star

Trading should always be done with proper backtesting; never trade a strategy without it. That’s why I’m providing some examples of the shooting star so you can see how to trade with this candlestick.

If you look at these images, it might seem like this candlestick only brings profit, but when you keep trading, it won't be like that. At that time, your trading psychology will give you many signals, telling you to exit and avoid losses. That's why it's very important to correct your trading psychology. You can read this because it talks about this topic in detail.

Benefits of Using Shooting Star Candlestick Pattern

There are some good benefits of trading with the shooting star candlestick that are important to know so that you can start trading with this candlestick.

• First, it's a single candlestick pattern, meaning it only needs one candlestick to form. That's why it can easily form, and there are higher chances of it appearing.
• Unlike other candlestick patterns where 2 or 3 candlesticks are needed to form something, like the Tweezer Top or Evening Star.
• Second, it's easy to spot due to its long upper shadow and small body.
• Third, the color of this candlestick doesn't matter much because the entry and exit will be based on the next candlestick.
• The shooting star candlestick is a strong reversal candlestick, and it can provide significant targets in trading.

Limitations of Shooting Star

Just like there are benefits, every candlestick pattern has some limitations as well, and it's important to understand those too.

• First, just the formation of a shooting star does not guarantee the start of a bearish trend. You need to wait for the next candlestick to confirm it.
• If the candlestick formation is incorrect, the market might remain in an uptrend.
• Sometimes, even after a shooting star pattern is broken, it can still provide targets.
• To avoid this, you'll need to backtest this candlestick pattern.

Quick tips on Shooting Star Candlestick

• The shooting star is a bearish candlestick.
• It has a long upper shadow that is typically twice the length of its body.
• In this candlestick, the color doesn’t matter.
• This candlestick forms at the end of an uptrend.
• The shooting star candlestick often forms at a psychological number or in a selling zone.
• Whether the shooting star candlestick will work or not is determined by the candlestick that follows it.
• The entry for this candlestick is determined by the next candlestick. If the next candlestick breaks the low of the shooting star, then you consider entering.
• The target 1 for this candlestick is typically equal to its size.
• The stop-loss for the shooting star is placed if its high is broken.
• Traders often find this candlestick quite reliable.

Conclusion on Shooting Star Candlestick

That’s all about the shooting star candlestick. Yes, it would be correct to say that just because this candlestick forms, you shouldn’t decide that the market will definitely go down. There are many other factors for confirmation, and you should use additional indicators as well.

You can use different timeframes for confirmation. Traders recognize this candlestick by its small body and long upper shadow.

Lastly, I would say best of luck to all the new traders.

If anyone wants to make improvements to this article or discuss anything related to trading, don’t forget to contact us.

All Option Trading Strategies You Can't Afford to Miss Before Trading in 2024

 Even though options trading has a lot of moving parts, most investors may utilize simple tactics to increase returns, wager on market movements, or protect current positions. When you already own shares in the underlying company, you can employ covered calls, collars, and married puts to protect your investment. Spreads are made when one or more options are bought and another or more options are sold at the same time. You can make money with long straddles and strangles whether the market goes up or down.

Using options trading, you can purchase or sell stocks, ETFs, etc., at a designated price within a designated period. Furthermore, this kind of trading allows consumers the choice not to purchase the asset at a designated price or date. Long call options, short call options, long put options, short put options, long straddle options, and short straddle options are among the option trading strategies. In-the-money, at-the-money, and out-of-the-money are the three primary choice trading situations.

Options trading offers leverage, cost-effectiveness, flexibility, options strategies, and hedging, among other things. Call and put options are two varieties of options seen in the stock market. A "call option" is a purchase option for a stock; a "put option" is a selling option for a stock.

Before learning about option trading strategies, you need to understand what option trading is? Trading isn't inherently difficult, but if you start trading without knowing these strategies, your chances of incurring losses will increase significantly.

What is Options Trading?

Options trading entails the purchase and sale of options contracts. These contracts are connected to an underlying asset and grant the owner the option to buy or sell a specific amount of that asset at a predetermined price within a specified time. "Essentially, the purchase of an option does not involve directly buying or selling the stock. Instead, it grants you a contract that grants you the ability to buy or sell the stock at a predetermined price.

The buyer of an option has the right, but not the responsibility, to buy (call option) or sell (put option). This right is granted to the buyer through the trading of options. Trading options entail employing tactics that give traders access to a variety of market positions, allowing them to either make profits or reduce the risk associated with the spot market.

What is an Option Chain?

An option chain, also known as an option matrix, is a crucial tool in the realm of options trading. It offers traders and investors a thorough perspective on the various options available for a specific underlying asset, such as stocks, indices, or commodities. Imagine it as a selection of options, each offering a distinct agreement that provides certain rights and responsibilities.

One way to describe all the available options contracts for a specific underlying asset, like a stock, index, or commodity, is via an option chain, which is also called an options matrix. For that particular asset, it shows the call and put options pricing, strike prices, expiration dates, and other pertinent details.

Option chains offer detailed information about options contracts, such as strike prices, expiration dates, implied volatility, and open interest. Traders utilize this data to create options strategies, mitigate risk, and capitalize on price fluctuations in the underlying asset.

What is the Strike Price?

The strike price on an options contract represents the price at which the underlying security can be bought or sold upon exercise. Options are derivative contracts that give buyers the right to buy or sell a specific security at a predetermined price until a certain date.

The strike price, also known as the exercise price, is a crucial component of every options contract. It's the price point where your contract starts making a profit. Within an options contract, the strike price represents the prearranged price at which a particular security can be purchased (in the case of a call option) or sold (in the case of a put option) by the option holder until the contract's expiration. The strike price and exercise price are often used interchangeably.

But three types of strike prices are very important to understand. These three strike prices are In-the-Money (ITM), At-the-Money (ATM), and Out-of-the-Money (OTM).

What is At the Money (ATM)?

At-the-money (ATM) options refer to calls and puts that have a strike price that is either at or very close to the current market price of the underlying security. Even though ATM options are on the verge of being exercisable, they lack any inherent value. On the other hand, ATM options are frequently employed when a trader anticipates a significant price movement in the underlying asset.

Options that are "at the money" do not have any inherent value and will result in a loss if they are exercised, as the premium paid for the option will not be recovered. However, the ATM is the point at which the option will begin to hold intrinsic value. When the strike price of an option matches the current market price of the underlying asset, it creates a specific scenario.
At the money is a commonly used term in options trading. An ATM situation occurs when the strike price of an options contract matches the current stock price. ATM is one of the three key components of options trading.

What is In the Money (ITM)?

If the market price is above the strike price, then a call option is considered to be in the money (ITM). An option's state of 'moneyness' refers to whether it is in the money (ITM) or not. This is determined by comparing the underlying asset's status to its strike price, which is the price at which it can be bought or sold.

An option that possesses intrinsic value is referred to as "in the money" (ITM). A profitable option is an option that offers a chance to make money based on the relationship between the strike price and the current market price of the underlying asset. When an option is "in the money," it signifies that the option holds inherent value and can be exercised. Nevertheless, the fact that an option is classified as in the money does not guarantee a profitable outcome.

What is Out the Money (OTM)?

Out of the money, or OTM, refers to an option that lacks intrinsic value and is solely dependent on extrinsic value. When the price of an Option has not yet reached its strike price, it is referred to as being out of the money (OTM). Being out of the money is one of the three states of option moneyness. The other two options are in the money (ITM) and at the money (ATM).

OTM options are more affordable compared to ITM options, making them a popular choice among traders with limited capital. When the current market price of the underlying asset is higher than the strike price of the option, the put option is considered out-of-the-money (OTM).

What is a Call Option?

Similar to an auditor, a call is an option contract that grants the owner the right to purchase an underlying security at a predetermined price during a specific period. This contract grants the buyer the option to purchase the asset at a specified price before the contract's expiration date.

Call options are a financial contract that grants the buyer the right, but not the obligation, to purchase a specific stock, bond, commodity, or other asset at a predetermined price within a specified timeframe.

A call option contract usually consists of 100 shares and has an expiration date upon exercise. Investors have the option to either sell or buy underlying assets based on their expectations of price movement. The buyer has the authority to decide whether to exercise the option or let it expire.

What is a Put Option?

Put options provide holders with the right to sell a specified amount of an underlying security at a predetermined price within a designated period, without any obligation to do so. With a put option, you can sell a stock at a specific price (known as the "strike price") before a certain date without being obligated to do so. Before diving into the specifics, it's crucial to have a solid grasp of options.

What are Option trading Strategies?

Options trading may seem complicated, but there are simple strategies for trading in options market that many investors can utilize to increase returns, speculate on market movements, or protect current positions.

Exploring options trading strategies, understanding their potential rewards and risks, and identifying when traders can effectively leverage them for their next investment. Although these trading strategies may seem simple, they have the potential to generate significant profits for traders. However, it's important to note that they come with a certain level of risk.

Types of Option Trading Strategies

There are numerous options trading strategies that one can utilize in the ever-changing market. However, there are approximately three types of strategies for trading in options. Firstly, there are bullish strategies such as the bull call spread and bull put spread. Additionally, there are bearish strategies like the bear call spread and bear put spread. Additionally, there are neutral options strategies available, such as the Long and Short Straddle, Long and Short Strangle, and more.

I have used all these strategies myself, so I would suggest that you also use them and apply them to your trading. Not everyone will agree with all option trading strategies here, but you should understand human nature: everyone thinks differently. However, these strategies are used by investment bankers, so it's worth trying them out.

Strategy 1: Covered Call

A covered call is a commonly employed options strategy that allows investors to generate income when they believe that stock prices are unlikely to experience significant growth shortly. If the stock price remains below the strike price and the option buyer chooses not to exercise the contract, you will retain ownership of the stock and the premium you received.

Advantages of a Covered Call Strategy

1. You earn income immediately.
2. You potentially lock in a higher price for your investment.
3. You get a little downside protection.

Strategy 2: Protective Put Strategy

Investors often utilize a protective put as a valuable risk-management strategy with options contracts. Its purpose is to safeguard against potential losses in stocks or other assets. Investors often choose to buy protective puts on their existing assets to help minimize any potential losses in the future.

Strategy 3: Long Strangle Strategy

An investor buys out-of-the-money calls and put options. Call options have higher strike prices than the underlying asset's market price, whereas put options have lower strike prices. This means that the strategy costs less to start, but the stock will have to move more in either way for you to make money.

Strategy 4: Long Straddle Strategy

An options strategy involves purchasing both a long call and a long put on the same underlying asset, with the same expiration date and strike price. An options trading strategy involves purchasing both a call option and a put option with the same strike price and expiration date.

Strategy 5: Bull Call Spread Strategy

A bull call spread is a popular options strategy employed by traders who anticipate a modest rise in the price of an asset. This strategy restricts potential losses to the net debit paid and limits gains to the difference between strikes.

Strategy 6: Bear Put Spread Strategy

An options strategy called a bear put spread can be used by investors who have a bearish outlook and want to minimize losses while maximizing profit. There is a limit to the profit if the stock price goes below the strike price of the short put (lower strike), and there is also a limit to the potential loss if the stock price goes above the strike price of the long put (higher strike). A bear put spread strategy entails buying and selling puts for the same underlying asset, with the same expiration date but at different strike prices.

Strategy 7: Iron Condor Strategy

An iron condor is a strategy used in options trading that tends to generate the highest profits when the underlying asset remains relatively stable. However, it is possible to adjust the strategy to have a more optimistic or pessimistic outlook. This strategy, known as the iron condor, offers a way to potentially benefit from low volatility in the underlying security. It is a limited-risk, limited-profit approach that can be advantageous when the strategy is active.

Strategy 8: Butterfly Spread Strategy

An options strategy known as a butterfly spread combines elements of both bull and bear spreads. This strategy is considered advanced due to the relatively low-profit potential in terms of dollars and the high associated costs. The symmetrical structure is a key characteristic of the long call butterfly spread.

Strategy 9: Calendar Spread Strategy

A calendar spread is a strategy in derivatives that involves purchasing a contract with a later expiration date and selling a contract with an earlier expiration date. As an example, you could consider buying a call option with a strike price of 100 for two months and simultaneously selling a call option with the same strike price of 100 for one month. With a debit position, payment is required upfront for the trade.

Strategy 10: Iron Butterfly Strategy

Iron butterfly trades can be a profitable strategy for capitalizing on price movement within a limited range when implied volatility is decreasing. The iron butterfly, modified butterfly, and condor spread are part of a group of option strategies referred to as "wingspreads."

Conclusion

These option trading strategies have been developed by highly professional hedge fund managers after years of knowledge and experience, allowing them to minimize their losses as much as possible. Options trading is not rocket science; you just need knowledge of the best strategies so that you can adapt them to your situation in the market.

These are some of the best strategies for options trading you can follow to get the best outcome for your trades.

Smart Money Concept (SMC): Trading Strategies, Order Block, FVG, Breaker & more 2024

SMC, which stands for Smart Money Concept, refers to “smart money,” which represents large traders and institutions involved in trading. The “concept” signifies their trading strategy, highlighting where they buy or sell.

What is SMC Trading in detail?

Smart Money Concept is a trading approach that allows you to follow the path of large traders and take trades in their buying and selling zones. In this, many trading strategies are combined to execute trades. A trader takes trades based on various factors such as order block, liquidity, break of structure, fair value gap, inducement, mitigation, supply and demand zones, and liquidity grab.

When you trade according to institutional investors and traders, your stop loss is very small, and the target is double or triple that amount. SMC is not just a trading strategy but a way to understand the market. As I mentioned earlier, “smart money” refers to banks and institutions that manipulate the market.

When you look at the Smart Money Concept, it’s simply based on supply and demand zones. However, so-called SMC traders present these same things with new terms like liquidity grab, order block, fair value gap, and mitigation blocks. But when you trade personally, you’ll realize that it’s a very simple concept.

Today, I will explain everything about SMC, including where it originated and the terms used, such as order block and fair value gap. I will also detail how you can use SMC for trading.

Who introduced Smart Money Concept (SMC) at first?

The Smart Money Concept was first presented by Inner Circle Traders (ICT) as a program for understanding the market. It was introduced by Michael J. Huddleston. In this, old simple market concepts have been presented with new terms, making them seem fresh in the market. Most traders believe it’s a new concept through which they can potentially grab more profits. But if you can make a profit using SMC, what’s the harm in that?

All New Terms of SMC and How to Trade With It?

So now, let’s understand all the key terms of SMC and how trades can be taken based on them. Here, you will learn about supply and demand zones, order block, fair value gap, market structure shift, liquidity sweep, liquidity purge, break of structure, change of character, inducement, and much more.

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Supply and Demand Zones

Supply and demand zones are very simple concepts, and just from the words themselves, you can understand what they are. Supply means the area from where the price always starts to fall because traders distribute their positions. And demand means that traders buy there, and due to high demand, the price starts to go up. Simply put, supply is resistance and demand is support.

Order Block (OB)

Order blocks refer to those supply and demand zones where institutional traders have placed their orders. In this, when large traders place their orders, the market reacts quickly, moving up or down. However, not all of their orders get filled in this initial movement. To fill the remaining orders, the market returns to the same zone, fills the rest of the orders, and then moves toward the target to achieve it.

How to Trade with Order Block (OB)

To trade in an order block, identify a sudden movement near the supply and demand zones, and as soon as you spot it, mark the last negative candlestick from that order block. And when the price returns again, you will get an entry at the high/low of the last negative candle, and the stop loss will be just halfway above or below it, depending on whether you’re buying or selling. Check out this image; it’ll help you understand better.

                           

Fair Value Gap (FVG)

Now you’re going to understand what Fair Value Gap is. When institutional traders buy or sell, sudden movements occur in the market, which creates an imbalance. This imbalance is what is called a Fair Value Gap. In a perfect Fair Value Gap, there are three candlesticks, and all three should have the same color. If it’s bearish, all three will be red, and if it’s bullish, all three will be green. The imbalance occurs in the second or middle candle. Start counting the candles from the bottom for bullish or from the top for bearish, as the first, second, and third. The middle candlestick will be the imbalance candlestick.

How to Trade with Fair Value Gap (FVG)

To trade in a fair value gap, you need to wait for a retracement. This is very similar to trading with an order block. You should enter the trade when the price is in the imbalance section, meaning during the second candlestick. The target will be set at the next resistance or support, depending on your choice. The stop loss should be placed at the high or low of the first candlestick, depending on whether you’re selling or buying. Look at the image to understand better.

Market Shift Structure (MSS)

MSS helps you recognize the ongoing trend in the market and identify new trends. When new highs (HH) and higher lows (HL) are being formed in the market, MSS lets you know that an uptrend is in progress. And when new lows (LL) and lower highs (LH) are being formed, MSS indicates that a downtrend is happening.

How to Trade with Market Shift Structure (MSS)

You can trade in this way: When a new high (HH) is formed in the market, a higher low (HL) will follow, taking support from the previous high’s resistance, and then the market will aim to form a new high (HH). You can enter the trade at this point. Take a look at the image to understand clearly.

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Break of Structure (BOS)

It means that when a higher high (HH) or higher low (HL) is formed in the market, and as soon as it breaks the high or low, it is called a BOS (Break of Structure). You can understand the market trend by this, just like with MSS.

How to Trade with Break of Structure (BOS)

You can trade with this just like you did with MSS, but mainly traders do not suggest early entry in this. They prefer to add up more things like FVG and many more to confirm the trade.

Change of Character (ChoCh)

CHOCH happens when the price continues to make higher highs (HH) and higher lows (HL), but then it breaks its higher low (HL) and is unable to form a new higher high (HH). At that point, you can call it CHOCH (Change of Character). Since all of this is related to market structure shifts (MSS), that’s why I first explained MSS.

How to Trade with Change of Character (ChoCh)

You can catch a trend reversal trade using a “choch” (Change of Character). What happens here is that if the market makes a higher high (HH) and then comes down to form a higher low (HL), and if it breaks the higher low, the chances of a trend reversal increase. However, you should not enter the trade yet. When the price forms a new lower low (LL), the “choch” will be confirmed, and that’s when you can enter a reversal trade.

Liquidity Sweep (LS)

A liquidity sweep happens when large investors and traders deliberately push the market beyond an important level, like support or resistance, causing retail traders’ stop-losses to be hit. This forces many traders out of their positions, and then the market reverses from that point. This is what is called a liquidity sweep. When the same thing happens with a lot of speed, it’s called a liquidity purge.

How to Trade with Liquidity Sweep (LS)

Trading during a liquidity sweep is a bit difficult because it’s hard to determine the right entry point. However, one approach you can take is to reduce your trade size and extend your stop-loss further to give the market more room to move. Additionally, you can average your position to stay in the trade longer and manage risk more effectively.

Inducement

Inducement occurs when the market is deliberately pushed to make traders take some action. For example, if there’s a support level at 100, and most traders think it’s a good price to buy the stock, the price might push through 100 and drop to 90. Those who missed the initial move see the price drop even further and feel compelled to make a decision. If someone bought at 100, their stop-loss might get triggered, leading to a liquidity sweep.

On the other hand, those who see the price drop might think they’re getting a bargain and enter the market. They believe they’re making their own decision to enter, but this is actually part of a strategy by large investors and traders. It’s a form of liquidity sweep that creates more temptation for traders to enter the market.

All these actions are done only by large traders and investors to create liquidity so that they can open their positions.

Breaker

When the price creates a swing high and swing low, hunts stop-losses through inducement and liquidity sweep, and then breaks the lower low (LL) while creating a Fair Value Gap (FVG), it forms a perfect breaker.

How to Trade with Breaker

As you know that trading without any confirmation is not good for anyone. So when a breaker happer it creates a FVG, if the price returns to the FVG then you can enter in a trade and exactly like FVG as I already mentioned it here. In SMC there is no single signal to take trade there are multiple confirmations needed to take a single trade.

Conclusion on Smart Money Concept (SMC)

So, it was about SMC (Smart Money Concepts) and its key terms, and how you can trade using them. Trading in all these concepts is easy, but you need practice and time to understand these things. When you trade using traditional methods, you will start to understand all these concepts more easily.

All these terms sounds fancy and new generation attracts toward it. How ever if you can become a profitable trade by this why not using all these things.

So, that’s all for today. If you have any suggestions for improving this article, please contact us through the contact form provided below. We would be very happy to hear your suggestions.

Happy Trading to all Traders.