5. Inverted Hammer (Shooting Star)
Inverted Hammer or Shooting Star are candlesticks with bodies near the base of the candlestick, a short tail, and a long wick, typically around twice of the length of the body. They are literally the Hammer pattern but inverted. Inverted Hammers are usually green or white in colour while Shooting Stars are usually red or black in colour.
The Inverted Hammer pattern usually occurs at the end of a downtrend. This pattern shows that there was buying pressure, followed by some selling pressure, that was not strong enough to drive the price down. In a downtrend, the Inverted Hammer emboldens the sellers, but as the price could not be driven down, the bullish reversal is violent, due to a stronger buying pressure.
Meanwhile, a Shooting Star pattern is one that forms at the end of the uptrend. It is the result of rallying to a high price, before closing at a price near to the open. Shooting Star pattern traps buyers who bought in its higher range, possibly due to the preceding uptrend. When the price closes lower, it forces them to sell off their long positions, creating selling pressure.
Such an Inverted Hammer and Shooting Star patterns usually signify a reversal trend. Hence, when one encounters an Inverted Hammer pattern during a downtrend, they can possibly buy above the Inverted Hammer pattern for a reversal play, after some bullish confirmation. Also, when one encounters a Shooting Star pattern during an uptrend, they can possibly sell below the Shooting Star, for a reversal play.