Shooting star and inverted hammer
Other candles similar to the hanging man and hammer are the “shooting star,” and the “inverted hammer.” Both have small real bodies and can be either black or white but they both have long upper shadows, and have very little or no lower shadows.
Description
Inverted hammer is one candle pattern with a shadow at least two times greater than the body. This pattern is identified by the small body. They are found at the bottom of the decline which is evidence that bulls are stepping in but still selling is going on. The color of the small body is not important but the white body has more bullish indications than a black body. A positive day is required the following day to confirm this signal.
Signal enhancements
- The longer the upper shadow, the higher the potential of a reversal
- A gap down from the previous day’s close sets up for a stronger reversal
- Large volume on the day of the inverted hammer signal increases the chances that a blow off day has occurred
- The day after the inverted hammer signal opens
Pattern psychology
After a downtrend has been in effect, the atmosphere is bearish. The price opens and starts to trade higher. The Bulls have stepped in, but they cannot maintain the strength. The existing sellers knock the price back down to the lower end of the trading range. The Bears are still in control. But the next day, the Bulls step in and take the price back up without major resistance from the Bears. If the price maintains strong after the Inverted Hammer day, the signal is confirmed.
Shooting star
A small real body that gaps away from the large real body preceding it is known as star. It’s still a star as long as the small real body does not overlap the preceding real body. The color of the star is not important. Stars can occur at tops or bottoms.
Description
The Shooting Star is a single line pattern that indicates an end to the uptrend. It is easily identified by the presence of a small body with a shadow at least two times greater than the body. It is found at the top of an uptrend. The Japanese named this pattern because it looks like a shooting star falling from the sky with the tail trailing it.
Criteria
- The upper shadow should be at least two times the length of the
- Prices gap open after an
- A small real body is formed near the lower part of the price The color of the body is not important although a black body should have slightly more bearish implications.
- The lower shadow is virtually non-existent.
- The following day needs to confirm the Shooting Star signal with a black candle or better yet, a gap down with a lower
Signal enhancements
- The longer the upper shadow, the higher the potential of a reversal
- A gap up from the previous day’s close sets up for a stronger reversal move
- The day after the Shooting Star signal opens
- Large volume on the Shooting Star day increases the chances that a blow-off day has occurred although it is not a
Pattern psychology
During an uptrend, the market gaps open and rallies to a new high. The price opens and trades higher. The bulls are in control. But before the close of the day, the bears step in and take the price back down to the lower end of the trading range, creating a small body for the day.
This could indicate that the bulls still have control if analyzing a Western bar chart. However, the long upper shadow represents that sellers had started stepping in at these levels. Even though the bulls may have been able to keep the price positive by the end of the day, the evidence of the selling was apparent. A lower open or a black candle the next day reinforces the fact that selling is going on.