Difference Between Shooting Star and Inverted Hammer

Stock trading requires the ability to read complex technical charts. These charts are able to identify trends, momentum, and changing patterns in stock prices. The candlestick pattern is one of the most popular technical tools to track securities' movements. It consists of lines and rectangular shapes that resemble a candle, with wicks on each side. These patterns are used by investors to make buying or selling decisions. This article explains the differences between these candlesticks: inverted hammer and shooting star. Learn more about the differences.

Also known as the bullish pattern , the inverted hammer candlestick is also called the

Understanding the differences between an inverted star and a shooting star is possible only if you know what an inverted candlestick is.

The inverted Hammer candlestick pattern acts primarily as a bottom-reversal pattern. This pattern usually forms when a downtrend is approaching an end. This pattern can also form during a pullback within an uptrend, or at support. In order to form an inverted handle candle, the stock's price should be significantly higher than its opening level. The stock should then fall to or close to the previous day's low. The upper shadow in the inverted candlestick pattern is an indication that potential buyers might have begun to move up.

Although the sellers (known as bears), may have regained control by driving the price down, traders can detect the signs of buying interest. This is an early sign of bears. The next trading session should confirm a sharp bullish turn and, consequently, a bullish day. The candle formation indicates that bulls will soon enter the system.

Also known as the bearish pattern, the shooting star candlestick

The shooting star, unlike the inverted hammer which is a bottom-reversal pattern is actually a top-reversal model. The primary difference between the inverted hammer (a bullish reversal) and the shooting star is that the former can be seen as a bearish pattern. The shooting star pattern is most common at the end or middle of an uptrend or during a bounce in a downtrend or at the resistance.

The stock price rises sharply during a strong rally and opens much higher to form the shooting star candlestick pattern. The price of the stock closes near the day's lowest point as the session ends. This pattern should be confirmed by the next trading day, which will likely see a bearish day. The trend is up. However, the shooting star candlestick formation indicates that bears are fighting. The follow-up selling that occurs confirms the end to the uptrend, and a price reverse, at least for the short-term.

Inverted Hammer vs. Shooting Star - Three Points of Inference

Three simple conclusions can be drawn when it comes to shooting star vs inverted hammer

1. As an entry point, the inverted hammer pattern could be used

2. As an exit point, the shooting star pattern could be used.

3. Mixing and matching different patterns can help you create a trading strategy that is effective.

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It is obvious that the differences between an inverted-hammer and a shooting star are simple. A good knowledge of the various candlestick patterns will help you make informed trading decisions.