Understand Hammer pattern and Shooting star pattern
The Hammer pattern (pin bar)
The Hammer candlestick pattern is created when the open high and close are roughly the same price; it is also characterized by a long lower shadow that indicates a bullish rejection from buyers and their intention to push the market higher. See the example below:
The hammer is a reversal candlestick pattern when it occurs at the bottom of a downtrend. This candle forms when sellers push the market lower after the open,
but they get rejected by buyers so the market closes higher than the lowest price. See the example below :
As you can see the market was trending down, the formation of the hammer (pin bar) was a significant reversal pattern. The long shadow represents the high buying pressure from this point. Sellers was trying to push the market lower, but in that level the buying power was more powerful than the selling pressure which results in a trend reversal. The most important to understand is the psychology behind the formation of this pattern, if you can understand how and why it was created, you will be able to predict the market direction with high accuracy.
The shooting star (bearish pin bar)
The shooting formation is formed when the open low, and close are roughly the same price, this candle is characterized by a small body and a long upper shadow. It is the bearish version of the hammer. Professional technicians say that the shadow should be twice the length of the real body. See the example below:
The image above shows us a perfect shooting star with a real small body and an upper long shadow, when this pattern occurs in an uptrend; it indicates a bearish reversal signal. The psychology behind the formation of this pattern is that buyers try to push the market higher, but they got rejected by a selling pressure. When this candlestick forms near a resistance level. It should be taken as a high probability setup. Let’s take another chart as an example:
The chart above shows a nice shooting star at the end of an uptrend. The formation of this pattern indicates the end of the uptrend move, and the beginning of a new downtrend. This candlestick pattern can be used with support and resistance, supply and demand areas, and with technical indicators.
The shooting star is very easy to identify, and it is very profitable, it is one of the most powerful signals that i use to enter the market.