CANDLESTICKS - Inverted Hammer & Shooting Star

Inverted Hammer

As its name implies, the inverted Hammer looks like an upside down version of the hammer candlestick pattern. The pattern is made up of a candle with a small lower body and a long upper wick which is at least two times as large as the short lower body. The body of the candle should be at the low end of the trading range and there should be little or no lower wick in the candle.

Like the hammer candlestick pattern, the Inverted Hammer consists of one candle and when found in a downtrend is considered a potential reversal pattern.After a decline, the long upper shadow indicates buying pressure during the session. However, the bulls were not able to sustain this buying pressure and prices closed well off of their highs to create the long upper shadow. Because of this failure, bullish confirmation is required before action. An Inverted Hammer followed by a gap up or long white candlestick with heavy volume could act as bullish confirmation.

Shooting Star

The Shooting Star is a bearish reversal pattern that forms after an advance and in the star position, hence its name.

A Shooting Star can mark a potential trend reversal or resistance level.

The Shooting Star looks exactly the same as the Inverted hammer, but instead of being found in a downtrend it is found in an uptrend and thus has different implications.

The candlestick forms when prices gap higher on the open, advance during the session and close well off their highs. The resulting candlestick has a long upper shadow and small black or white body. After a large advance (the upper shadow), the ability of the bears to force prices down raises the yellow flag.

As this occurred in an uptrend the selling pressure is seen as a potential reversal sign. To indicate a substantial reversal, the upper shadow should relatively long and at least 2 times the length of the body and like to see an increase in volume on the day the Shooting Star forms.Bearish confirmation is required after the Shooting Star and can take the form of a gap down or long black candlestick on heavy volume.