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Hello, guys, and welcome to the next lecture in Section 4, where I will explain the first two
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candlestick patterns called the Hammer and the Shooting star patterns.
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As the name suggests, hammer pattern looks like a hammer.
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It occurs after a downtrend and signals bullish sentiment with the buying strength coming back into
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the market.
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On the other hand, shooting star is the opposite candlestick formation to hammer and a shooting star appears
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after an uptrend and signals the bearish sentiment with selling strength entering the market.
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Let us quickly look at a typical hammer and shooting star formation using an illustration.
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A hammer signifies that sellers were able to push the prices lower initially before the buyers took
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control of the price, and the closing price is well above the opening price of the session.
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The lower tail or wick of the Hammer candle is usually twice the size of the real body of hammer.
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A shooting star on the other side brings a pause to the buying strength as the buyers were able to push
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prices higher early in the session before sellers are able to close the session well below the opening
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price of the candle.
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The upper tail or wick of the shooting star candle is usually more than twice the size of the real
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body of the candle.
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Please note that it is possible for a shooting star to have a small wick and for hammer to have a small
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upper wick.
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Guys, for both of these patterns, the lower tail for the hammer and the large upper tail for the shooting
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star is a sign of increased strength associated to this pattern.
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Now, when it comes to taking trading positions based on these patterns, you will always consider following
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key points:
1. whether a shooting star pattern or a hammer appeared after a clear uptrend or downtrend,
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respectively.
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This means that the importance of the pattern increases when they appear after clear market trends.
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2. whether these patterns are also associated to key support and resistance zones on your trading chart.
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If this happens, you are able to trade these patterns with increased confidence.
3. While one shooting
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star after a clear up trend, signals the bearish sentiment.
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However, if you see two or three consecutive shooting stars, then this is adding even more bearish
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sentiment in the market.
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Exactly the same guidelines apply for consecutive Hammer patterns.
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Now let us study what we've learned in this lecture
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through examples.
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Guys, the first example is of GBPJPY forex pair, and we are looking at a shooting star
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formation.
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Notice how the price rallied in an uptrend on this pair before a shooting star appeared at the key support
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zone. Also noticed the larger upper tail of the shooting star, which explains that buyers failed to push
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prices higher during this trading session.
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In addition, following the shooting, star price fell sharply on this pair towards the next level.
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Let's look at another example of shooting star. In the next example, we're looking at daily chart of
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EURUSD forex pair.
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Once again, notice that the market was in clear uptrend prior to shooting star candle.
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Guys, I want you to compare the real bodies of the shooting star examples you've studied so far in
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this lecture.
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A shooting star indicates bearish sentiment, but a shooting star with a bearish colored body is of
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increased strength.
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Once again, price declined here.
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And another shooting star was recorded after a few sessions before price declined sharply.
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Let us study another example of shooting star now on CHFJPY forex pair daily chart.
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As you see here, after a clear uptrend, a shooting star appeared with a long upper wick at key
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support level and price fell sharply after that.
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In addition, once prices reached a key level, which acted as a resistance, a hammer candle appeared indicating
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the buying strength on this pair as price went higher in a sideways movement.
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The next example is of hammer on crude oil daily chart.
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See how this pattern appeared on a major support level with a large lower tail indicating the buying
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strength in the market.
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Moreover, following this hammer, price rallied sharply towards the next key resistance level.
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Let's study one final example in this lecture.
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Now we're looking at GBPUSD on a daily chart to study another strong hammer formation.
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The color of this hammer formation is also bullish, hence indicating increased
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buying strength in the market.
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And once this hammer candle appeared at a major support, price rallied sharply in an uptrend.
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Guys, this also concludes this lecture.
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And I will see you in the next lecture where we study another two of my favorite candlestick patterns.
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.
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