The Inverted Hammer and the Shooting Star are a Japanese candlestick shape that look like an upside down version of the Hammer candlestick. Both of the candlesticks are made up of a candle with a small lower body, little or no lower shadow, and a long upper shadow that is at least two times the size of the lower body. The difference between the Inverted Hammer and the Shooting Star is that the first has a white body, and the second has a black one. The long upper shadow of the Inverted Hammer candlestick indicates that the buyers drove the price higher but encountered selling pressure which drove prices back down to close a bit higher than the open, whereas in the Shooting Star’s case, the price closed a bit lower than the open.
When the Inverted Hammer is found in a downtrend then it usually means a reversal in the current trend upwards, and when it appears in an uptrend then it is called a Shooting Star, and it usually means a reversal in the current trend downwards. The Inverted Hammer and the Shooting Star have to appear at market bottoms and top respectively to indicate a reversal, otherwise, they will not hold any meaning.
The Inverted Hammer and the Shooting Star are very powerful candlestick shapes and they are excellent confirmation signals when used with other chart patterns and technical indicators, like deviations in the RSI or crossovers in the MACD. They are a very important trading tools in FXLORDS’ services; Managed Forex Accounts, Forex Trading Signals, and it is among subjects discussed in the Training Course.
When traders encounter the Inverted Hammer candlestick, they often wait for a higher open and a higher close on the next period to validate it as a bullish signal, whereas when they encounter the Shooting Star candlestick, they wait for a lower open and a lower close on the next period to validate it as a bearish signal.