Archive for June, 2010
Improve Your Market Timing: The Inverted Hammer Candlestick Pattern
June 28th, 2010 | 
Author: - The Inverted Hammer is a single session reversal pattern.
- The Inverted Hammer appears at the bottom of a downtrend and is the inverse of a Hanging Man pattern which is located at the top of a trend.
- The upper wick is ideally at least twice the length of the real body with little or no wick to the bottom.
- The pattern is slightly more bullish if the real body is white as opposed to dark.
- A gap down into the Inverted hammer increases the strength of the signal.
- Many times you will see the Inverted Hammer associated and combined with other candles such as a Hammer and/or a Doji that will confirm and strengthen the reversal.
- The relatively long wick to the upside begins to indicate to the bears that buying pressure is stepping in.
- The bears will heed the notice and begin to cover their short positions even though they won the battle temporarily by pushing the stock lower.
- The pattern is validated by a gap up to a bullish follow though session and is further fueled by more short covering.
- Increased volume on the reversal day is also an indication the stock will be changing direction.
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Improve Your Market Timing: The Shooting Star Candlestick Pattern
- The Shooting Star is essentially a single candle bearish reversal pattern but is enhanced in its’ interpretation if read as a three candlestick pattern.
- The session prior to the Shooting Star should ideally be a long white bullish candle with a gap up to the shooting star candle.
- The Shooting Star candle has a wick that is at least twice the length of the real body with little or preferably no wick to the downside.
- If the Shooting Star candle is dark then it is a bit more bearish.
- The longer the upside wick the better the probability of a strong reversal.
- The reversal is confirmed when the stock gaps down after the Shooting Star session and trades down with a dark candle.
- If large volume is associated with the Shooting Star candle it indicates that the investment community attempted to take the stock higher and the consensus of opinion was that the stock couldn’t justify the higher price level.
Improve Your Market Timing: The Morning Star Candlestick Pattern
- The Morning Star candlestick pattern is the mirror image of the Evening Star except it is found at the bottom of a downtrend.
- The pattern consists of three candles with the first candle being a long and dark followed by a gap down to a doji or Spinning Top and finishing with a gap up to a long white candle.
- The second candle indicates indecision and the third and final candle in the formation confirms the bullish reversal.
- The confirmation candle (The third candle) is much more convincing if it closes at least half way into the first long dark candle.
- Increased volume on the second and third candle will also confirm that the sentiment is changing as the bulls take the upper hand.
- The Evening and Morning Star candlestick formations are in my opinion two of the strongest reversal patterns in technical analysis.
- The validity of the formation is strengthened when confirmed by other indicators such as support and resistance zones, trend lines, major moving averages and chart patterns.
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