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Old 01-02-2008, 02:30 PM   #1 (permalink)
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Inverted Hammer and Shooting Star Patterns: How to Trade Them


Inverted Hammer and Shooting Star Patterns: How to Trade Them

In our last lesson we learned about the Morning and Evening Star Candlestick Patterns. In today's lesson we are going to wrap up our series on candlestick chart patterns with a look at the Inverted Hammer and the Shooting Star candlestick patterns.

The Inverted Hammer Candlestick Pattern



As its name implies, the inverted Hammer looks like an upside down version of the Hammer Candlestick Chart Pattern which we learned about several lessons ago. Like the Hammer Pattern, the Inverted Hammer is comprised of one candle and when found in a downtrend is considered a potential reversal 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.

What this chart pattern is basically telling us is that although sellers ended up driving price down to close near to where it opened, buyers had significant control of the market at some point during the period which formed the long upper wick. This buying pressure during the downtrend calls the trend into question which is why the candle is considered a potential reversal pattern. Like the other one candle patterns we have learned about however, most traders will wait for a higher open on the next trading period before taking any action based on the pattern.

Most traders will also look at a longer wick as a sign of a greater potential reversal and like to see an increase in volume on the day the Inverted Hammer Forms.


The Shooting Star Candlestick Pattern



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. Like the Inverted Hammer it is made up of a candle with a small lower body, little or no lower wick, and a long upper wick that is at least two times the size of the lower body.

The long upper wick of the chart pattern indicates that the buyers drove prices up at some point during the period in which the candle was formed but encountered selling pressure which drove prices back down for the period to close near to where they opened. As this occurred in an uptrend the selling pressure is seen as a potential reversal sign. When encountering this pattern traders will look for a lower open on the next period before considering the pattern valid and potentially including it in their trading strategy.

As with the Inverted Hammer most traders will see a longer wick as a sign of a greater potential reversal and like to see an increase in volume on the day the Shooting Star forms.


Other Links On InformedTrades About Inverted Hammers and Shooting Stars

The Inverted Hammer Candlestick Pattern
The Inverted Hammer Signal
inverted hammer : Threads Tagged with inverted hammer


Links Around the Web to Help You Learn About Inverted Hammers and Shooting Stars

Shooting Star Candlestick Pattern
Candlesticker by Americanbulls.com - Bearish Shooting Star Pattern
Shooting Star Candlestick Chart Pattern
Inverted Hammeri Candlestick Chart Pattern
Bullish Inverted Hammer Japanese Candlestick Chart

That completes this lesson and wraps up our series on candlestick chart patterns. In our next lesson we are going to start a new series with a look at Money Management and how this applies to profitable trading so we hope to see you in that lesson.

As always if you have any questions or comments please leave them in the comments section below so we can all benefit and learn to trade together!

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Old 09-30-2008, 09:44 PM   #2 (permalink)
 
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Upright vs. Inverted Hammer


Greets David,

First of all - love the website. You've definitely accomplished something great here and I really appreciate it.

Question: Would I be correct in thinking that the upright and inverted hammers are the essentially the same, whereas they are indicators of a potential reversal -- but the upright hammer is more bullish than the inverse hammer when found in a consistent trend?

Thanks,

-Victor
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Old 10-01-2008, 08:18 AM   #3 (permalink)
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Hi Victor,

Glad to hear from you and welcome to the community.

The patterns are the same in the sense that they are both indicative of buying pressure in the market however yes I think most would agree that the upright hammer is a more bullish pattern.

Best Regards,
Dave
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Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.
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Old 03-01-2009, 10:17 AM   #4 (permalink)
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programes?


Hi, nice site, very educational. I was wondering if there exists such a computer programe/software or system that encorporates all of the charting oscilators and patterns to give you an alert or a programe that you could add the oscilators and patterns etc that you wished and then it would give you alerts, or even a programe that goes through stocks you name and it puts all these signals on to it? or is it a matter of having to remember all of these oscilators and patterns?
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Old 03-01-2009, 07:44 PM   #5 (permalink)
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Thank you for the compliment I am glad you like the site. Yes there are
software packages out there like this. The one I recommend is Prorealtime
which you can learn about below:

Prorealtime Charts - InformedTrades

Best Regards,
Dave
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Old 07-14-2009, 11:11 PM   #6 (permalink)
 
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increase in volume


HI David,
I was looking at your chart with the inverted hammer and it has an arrow pointing to the red bar and you made a note that it was an increase in volume. I thought the red bars meant selling off and the green bars meant buying.
thanks,
jackie
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Old 07-14-2009, 11:18 PM   #7 (permalink)
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Hi Jackie

Welcome to the community

Quote:
I thought the red bars meant selling off and the green bars meant buying.
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The color of the bars has to do with price going up or down. A red bar means the price dropped that time period, a green bar means price went up.

Volume has to do with the number of transactions that take place. It is shown by the length of the volume bar, not the color. The longer the bar, the more volume there was (the more shares that were bought and sold). Volume can be high or low when price is going up, as well as when price is going down.

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Tek
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Old 12-07-2009, 08:28 PM   #8 (permalink)
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does the inverted hammer and shooting star have to be black or can they be white as well like the hammer and the hangman?
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Old 12-07-2009, 08:51 PM   #9 (permalink)
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Hi Unreg

They can be white as well.

Cheers
Tek
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Old 08-29-2010, 09:48 AM   #10 (permalink)
 
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Hi David,

What is the difference in the red bars and green bars on the volume section of your charts?

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