The Shooting Star & EMA Strategy is a high-probability reversal method that combines the Shooting Star candlestick pattern with the Exponential Moving Average (EMA) to identify ideal short trade entries at the end of bullish moves. The EMA acts as a dynamic resistance level, while the Shooting Star signals a strong rejection of higher prices—often marking the beginning of a downward correction or full trend reversal.

This strategy is especially effective in forex, indices, and commodities, particularly on H1, H4, and daily timeframes.

What Is a Shooting Star Candlestick?

A Shooting Star is a bearish single-candle pattern that appears after a price rally.

Key Characteristics:

• Small real body near the bottom of the candle
• Long upper wick (at least twice the body size)
• Little to no lower shadow
• Indicates strong selling pressure after a failed push higher

Implication: Potential shift from bullish to bearish momentum

What Is the Exponential Moving Average (EMA)?

The EMA is a trend-following indicator that gives more weight to recent prices.

Common settings:

• 20 EMA: short-term trend
• 50 EMA: medium-term trend
• 200 EMA: long-term trend

Use in this strategy: EMA acts as dynamic resistance during retracements or rally exhaustion.

Strategy Objective

• Identify price rejection near a dynamic resistance EMA
• Use the Shooting Star to time entries
• Short the market with defined stop and target based on structure

Indicators and Tools Required

• Candlestick chart
• EMA (20 or 50 recommended)
• Optional: RSI or MACD for additional confirmation

Step-by-Step Strategy Setup

Step 1: Identify a Recent Bullish Move

• Price should be making higher highs
• Look for rallies into prior resistance or EMA zones

Step 2: Add EMA (e.g. 20 EMA)

• Wait for price to approach and touch the EMA from below
• EMA should be flattening or turning down, indicating momentum loss

Step 3: Look for a Shooting Star

• The candle’s upper wick should be at least twice the body
• Appears after a test of the EMA or resistance
• Stronger if the candle closes below the EMA

Step 4: Entry

• Enter short on the next candle open after the Shooting Star closes
• Conservative entry: wait for price to break the low of the Shooting Star

Step 5: Stop Loss

• Just above the high of the Shooting Star
• Can adjust based on volatility (e.g. use ATR)

Step 6: Take Profit

• Use the next support level or 1:2 risk-to-reward ratio
• Consider using a trailing stop to capture larger moves

Example: NAS100 H1 Setup

• NAS100 rallies to 15,320 and taps the 20 EMA
• Shooting Star forms at the EMA, rejecting a prior swing high
• Candle closes at 15,280
• Entry: Short at 15,278
• Stop Loss: 15,330
• Target: 15,150

Best Markets and Timeframes

• EUR/USD, GBP/USD, USD/JPY, Gold, Oil, NAS100
• Timeframes: H1, H4, Daily for cleaner signals
• Avoid using during low-volume sessions (e.g. early Asia)

Tips for Optimisation

• Look for confluence with round numbers or horizontal resistance
• Stronger signals occur when the EMA acts as a repeated rejection zone
• Avoid trading against the dominant long-term trend without confirmation

Advantages

• Simple, structured entry based on candlestick and trend logic
• EMA provides context and dynamic resistance
• Clearly defined stop and target based on price structure
• High win-rate when used at exhausted rally zones

Limitations

• Requires patience—setups don’t form frequently
• Weak Shooting Stars or low-volume candles can create false signals
• Not suitable for sideways or choppy markets

Conclusion

The Shooting Star & EMA Strategy is a reliable and disciplined method for shorting markets at the end of bullish runs. By combining price rejection with a trusted dynamic resistance tool, this strategy helps traders enter with precision and confidence.

To learn how to implement this setup alongside broader price action and trend strategies, enrol in our Trading Courses and start building a robust trading plan backed by proven methods.