Now That You Know the Basics…
You’ve already learned the fundamentals of candlestick patterns like Spinning Tops, Marubozus, and Dojis. Now, let’s take it a step further by identifying single candlestick patterns that can signal potential market reversals.
These patterns are especially powerful when they appear after a strong price move.
🔹 1. Hammer & Hanging Man
At a glance, the Hammer and Hanging Man look identical—but their meaning depends entirely on the preceding price trend.
Both candlesticks feature:
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A small real body (filled or hollow)
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A long lower shadow (typically 2–3 times the body length)
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Little or no upper shadow
✅ Hammer (Bullish Reversal)
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Occurs during a downtrend
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Suggests that sellers tried to push the price lower, but buyers regained control and closed near the session’s high
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Indicates potential bottoming and a reversal to the upside
Confirmation Tip: Wait for a bullish candle to close above the Hammer’s high before entering a long position.
Hammer Checklist:
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Appears in a downtrend
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Long lower shadow (2–3x the body)
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Little or no upper shadow
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Body at the upper end of the range
🚫 Hanging Man (Bearish Reversal)
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Appears during an uptrend
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Signals that sellers are gaining strength after a bullish run
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Buyers initially push higher, but sellers drive the price back down before the close
This shows potential weakness at market highs, indicating a possible trend reversal.
Hanging Man Checklist:
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Appears in an uptrend
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Long lower shadow (2–3x the body)
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Little or no upper shadow
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Body at the upper end of the range
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A black (filled) body adds to the bearish bias
🔹 2. Inverted Hammer & Shooting Star
These two patterns look the same in structure but differ in context.
They both feature:
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Small real bodies
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Long upper shadows
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Little to no lower shadow
✅ Inverted Hammer (Bullish Reversal)
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Forms at the bottom of a downtrend
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Shows that buyers attempted to push price higher but faced resistance
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Despite the pullback, buyers still closed near the open—signaling weakening selling pressure
This suggests potential for a reversal, especially when confirmed by a bullish follow-up candle.
🚫 Shooting Star (Bearish Reversal)
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Appears after an uptrend
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Indicates that buyers drove prices up but couldn’t sustain the rally
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Sellers took over and pushed the price back down near the open
This candle implies a potential market top or resistance level, especially when followed by a bearish candle.
Key Takeaway
Even though these single candlestick patterns look similar, their meaning is heavily influenced by trend context. Use them to spot potential turning points—but always wait for confirmation before trading on them.