The Inverted Hammer and Shooting Star Candlesticks

Investing in the Forex market isn’t a simple matter – it takes a good amount of skill and knowledge to develop a successful strategy. Most investors (even if they leave all the investing to their brokers) rely on technical tools or charts to develop an overall Forex trading system plan. Two of the more interesting reversal patterns on a Forex chart are the inverted hammer and shooting star candlestick.

The inverted hammer

The inverted hammer on a Forex trading system chart looks exactly like its name sounds – an inverted hammer. This type of candlestick has a short body and long upper shadow, which means that the rates for the majority of the time period remain above the opening (or closing) rate, and usually never falls below the opening (or closing) rate. It doesn’t really matter if the body is filled in (black or green) or hollow (white or red). What matters is that it signals a reversal bullish trend, where buyers will be entering the market.

A reversal trend on a Forex trading system chart is confirmed when another white (or red) body candlestick’s open price is higher than that of a candlestick to the left of the inverted hammer; otherwise, the trend may not last long and can reverse direction again.

The shooting star

The shooting star has the identical shape as an inverted hammer – a short body with a longer upper shadow and nearly any lower shadow – except that it represents a bearish trend instead of bullish movement. In this situation, the market is about to trend lower, with the market unable to support any new buyers. Usually, the body is black (or green) on a Forex trading system chart, which means that the close price is lower than the open price.

With a shooting star, the reversal trend is confirmed when the candlestick that follows a shooting star has a lower closing rate than a candlestick to the left of the shooting star. If the Forex investor doesn’t wait until this occurs, then the trade decision can be based on a trend that never materializes.

“Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.”



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