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Lesson 15

5. The Hammer

The “Pin Bar” is another name for it. The Hammer and the Hanging Man may appear to be identical, but their meanings are vastly different.

That, too, is dependent on the previous Price Action. Both have small, adorable little bodies (green or red), long lower shadows, and little or no upper shadow.

A hammer is a reversal signal that occurs when a downward trend comes to an end. The market “Hammers” from the bottom, so it’s called a Hammer. When the price is falling, a hammer will indicate that the jar is nearly empty, the bottom is visible, and the price will most likely rise again (the jar needs to be filled). The lower shadow indicates that the Bears attempted to lower the price even further, but the Bulls were simply too strong, and the price rose slightly above the opening level.

It’s been dubbed “survival mode.” When our lives are in danger, we all become much stronger.

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Just a word of caution: don’t rush into placing your purchase order once you’ve found your Hammer. You’ll need more bullish data to decide whether the market will rise again. As a warning or signal of a potential upward trend reversal, use the Hammer.

In the Japanese candlestick reversal pattern, how do you spot a Hammer? To be honest, it’s pretty simple. The candlestick’s body is twice or three times as long as the long shadow. The upper shadow is either non-existent or almost non-existent. The actual body is trading at the top of the range.

It doesn’t really matter what color you use. A green body, on the other hand, is a more reliable indicator.

  1. The Shooting Star

The Shooting Star is a fictional character. When the open, low, and close of a candlestick are nearly the same price, the formation is known as a Shooting Star. A longer upper shadow, twice as long as the body, will appear. A Bearing Shooting Star candlestick formation is formed when the low and close are the same. The Bears were able to shake off the Bulls and were able to push the price even lower than the opening level, making this a strong formation. This is a strong indication that the Bears will reclaim some of their lost territories.

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The market has been tested to determine the Resistance level, as evidenced by the longer upper shadow.

When the market reached resistance or the day’s highs, the Bears began to push the price lower. As a result, the candlestick shows a close proximity to the opening level. The Bears successfully defended the Bullish attempt, and they even managed to get a point at the end of the game.

Essentially, the Shooting Star candlestick indicates the end or near-end of an uptrend and the possibility of a reversal (downtrend in this case). Alternatively, it may end up in a period of consolidation (horizontal Price Action movement). This candlestick pattern is an excellent trade signal.

After the Shooting Star candlestick closes, you can set up a sell trade with a Stop-loss 10 PIPs above the Resistance area, as shown below.

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