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Inverted Hammer

An inverted hammer formation is as the name implies an upside down hammer formation. The formation has a real body at the lower end of the range, although the colour of the body is not important.

An inverted hammer is determined by a long tail on the high side, which should be at least twice as long as the body and a very small, if any, tail on the lower side.

Ideally an inverted hammer will occur at the end of a down trend or the lower side of a congestion phase. It’s a bullish signal. There’s probably going to be a gap between this real body and the previous body, although it’s not a pre-requisite. Nevertheless if a gap does exist the larger it is the stronger the buy signal.

Shooting Star

There are a few star formations and the star position is, as one would expect, above the recent activity. It could be at the end of an uptrend or above a recent congestion phase. It’s easy to see how this one was named.

A shooting star is a bearish signal, which has an upper tail, just like an inverted hammer, twice as long as the real body and a very short lower tail. Sometimes the lower tail doesn’t exist at all, as in the example below.

The colour of the body is not important it can be either filled or open, an up day or a down day. It is generally preceded by an up day with a long body. There is usually also a gap between the previous day’s body and the body of the star.

If the star occurs above a recent congestion phase the body of the star should be above all or most of the bodies found during that congestion.

Once again both the Inverted hammer and the shooting star represent potential turning points in the market. They signal a change from what has been whether that is a change in trend or a change in phase, from trend to congestion or congestion to trend.

Both formations they reflect indecision in the market because of the close proximity of the open and closing prices. That would also suggests a degree of balance a consensus between the buyers and sellers that the old recent activity may not continue.

The long upper tail suggests a probe higher during the session couldn’t continue. If that activity occurs at the end of an uptrend it tends to suggest rejection of higher prices and exhaustion of the move. At the end of a down trend it’s more the first test against the trend that creates a kink in its armour.



ASX Charting Course
Chapter 45 Candlesticks Formations II
Inverted Hammer An inverted hammer formation is as the name implies an upside down hammer formation. The formation has a real body at the lower end of the range, although the colour of the body is not important. An inverted hammer is determined by a long tail on the high side, which should be at least twice as long as the body and a very small, if any, tail on the lower side. Ideally an inverted hammer will occur at the end of a down trend or the lower side of a congestion phase. It’s a bullish signal. There’s probably going to be a gap between this real body and the previous body, although it’s not a pre-requisite. Nevertheless if a gap does exist the larger it is the stronger the buy signal.
Fig72 – Inverted Hammer formation
Shooting Star There are a few star formations and the star position is, as one would expect, above the recent activity. It could be at the end of an uptrend or above a recent congestion phase. It’s easy to see how this one was named. A shooting star is a bearish signal, which has an upper tail, just like an inverted hammer, twice as long as the real body and a very short lower tail. Sometimes the lower tail doesn’t exist at all, as in the example below.
Fig 73 – Shooting Star
The colour of the body is not important it can be either filled or open, an up day or a down day. It is generally preceded by an up day with a long body. There is usually also a gap between the previous day’s body and the body of the star. If the star occurs above a recent congestion phase the body of the star should be above all or most of the bodies found during that congestion. Once again both the Inverted hammer and the shooting star represent potential turning points in the market. They signal a change from what has been whether that is a change in trend or a change in phase, from trend to congestion or congestion to trend. Both formations they reflect indecision in the market because of the close proximity of the open and closing prices. That would also suggests a degree of balance a consensus between the buyers and sellers that the old recent activity may not continue. The long upper tail suggests a probe higher during the session couldn’t continue. If that activity occurs at the end of an uptrend it tends to suggest rejection of higher prices and exhaustion of the move. At the end of a down trend it’s more the first test against the trend that creates a kink in its armour.
Craig MacLean is a Futures Adviser Licensed under the Australian Securities Commission, Corporations Law. The writer accepts no responsibility for any losses incurred from any action or inaction derived from the advice in this report.

ASX Charting Course

Chapter 45

Candlesticks

Formations II

Inverted Hammer

Shooting Star