33. How to Trade the Inverted Hammer/Shooting Star Patterns
http://www.informedtrades.com/
A lesson on how to trade the Inverted Hammer and Shooting Star Candlestick Chart Patterns for active traders and investors using technical analysis in the stock, futures, and forex markets.
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 patterns with a look at the Inverted Hammer and the Shooting Star candlestick patterns.
The Inverted Hammer
As its name implies, the inverted Hammer looks like an upside down version of the Hammer 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 the 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
pic
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 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.
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.
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.
Duration : 0:5:7
This entry was posted on Tuesday, February 23rd, 2010 at 2:46 pm and is filed under stock market lessons. Follow the comments through the RSS 2.0 feed. You can post a comment, or leave a trackback.
Hi, firstly i …
Hi, firstly i should say your videos are awesome. Being a newbie into trading, i have gain great insights through you videos. thank you loads.
I do have a question, for all the patterns, does the color matter? for example what if i have a shooting star in a white colored cande on the uptrend instead of a black one? does that still mean that there is going to be a possible reversal despite the color on th candle?
February 23rd, 2010 at 2:47 pm
I don`t know who …
I don`t know who you are and why you are teaching people these classes for me. I personaly spent thousands of dollars to learn what you are teaching. I hope people appreciate you enogh. God bless
February 23rd, 2010 at 2:47 pm
Hey Kedmania,
It …
Hey Kedmania,
It actually refers back to the supply and demand that occurs when these patterns or types of candles show up. There is also some psychology thrown in the mix.
Basically what a hammer is showing is that there is a struggle between the buyers and sellers and one side is now beginning to gain in strength.
-Brendan
February 23rd, 2010 at 2:47 pm
so a hammer and an …
so a hammer and an inverted hammer both change the direction of the trend! how is this possible? love the vids btw.
February 23rd, 2010 at 2:47 pm
Dave,
Today in the …
Dave,
Today in the SPYders was a inverted hammer but closed higher than open and in the S&P was a clear inverted hammer. Is this exactly what you are talking about as reversals go? And what are the “Failure” rates of these or any other candle stick pattern.
Thank you for the informed video. You don’t know how many people you are helping. Wish you prosperity, peace and blessings.
February 23rd, 2010 at 2:47 pm
you have to watch …
you have to watch these videos over and over a few times to fully comprehend the ideas if you are new to trading. pausing helps as well as rewinding to understand one concept if you were confused. it just takes time! i was told it takes about 1 full year to fully get acquainted with your own trading habits and the markets if you want to do this for life, either as a side income hobby or managing your own investments.
February 23rd, 2010 at 2:47 pm
Hi Forexchemi, I …
Hi Forexchemi, I check them at least every other day however the best place to communicate with me is on the InformedTrades site by posting in the ask/answer question section of the site which you can find on the homepage. Best Regards, Dave
February 23rd, 2010 at 2:47 pm
Hello Dave, I have …
. Ah, Dave, how do you often check questions posted on youtube. I ask that because sometimes I want to ask you but I don’t know how long I will receive your response here. Thanks Dave so much 
Hello Dave, I have watched several videos of you. It’s really great. I’m trying to look over all of them. Thank you a lot, Dave, for your enormous effort. I appreciate it
February 23rd, 2010 at 2:47 pm
Hi VaKaBonSenTi, …
Hi VaKaBonSenTi, Thanks for the comment I am glad you like the videos. If you visit InformedTrades and then in the top navigation bar click on search and then enter the word “software” into the search box this will return a post on several different charting packages available. I have also messaged you the link. Best Regards, Dave
February 23rd, 2010 at 2:47 pm
Thank you Dave i …
Thank you Dave i really appreciate your vids. Very informative and always clear. BTW Do you know a software that you can suggest me where i can draw trends and put some indicators you know.
thank you
February 23rd, 2010 at 2:47 pm