Candlestick reversal patterns are common on stock charts and deserve special attention. The four most common are the hammer, hanging man, inverted hammer, and shooting star.

All of these have small candle bodies. One side has a short or non-existent wick, while the other side has a long or very long wick, generally expected to be at least twice the size of the candle body. These candles may be either ascending (white or clear) or descending (black or red). The most important part is their position within the current trend.

The hammer and hanging man have long wicks to the downside. The hanging man dangles at the top end of a bullish movement, while the hammer weighs at the bottom end of a bearish movement. Remember, both point down.

Below is an example of a hammer, just above the little hand:

As mentioned previously, the hammer forms at the bottom of a downtrend, and the long lower wick shows that plenty of selling pressure remains. However, sufficient buyers entered the market at this price to force the close back up to the high, signalling that the trend lower may be in trouble.

Should this candle form at the top of an uptrend, it would be called the hanging man. It would show that, while sufficient buyers remained active to force the price back up to a high level prior to the close, nevertheless there were enough sellers entering the market to force the low to a level that should catch the active candlestick trader’s attention.

The inverted hammer and shooting star are the opposite of the two candlesticks mentioned above. They have long or very long upper wicks, at least twice as long as the candle body (which may be ascending or descending), but will have short or nonexistent lower wicks.

The inverted hammer forms at the weighty end of a downtrend, while the shooting star hangs above the upper edge of a bullish move. Below is an example of an inverted hammer, this time beneath the little hand:

This inverted hammer formed after a gap-down opening. Buyers entered the market, as proven by the long upper wick. But enough sellers remained active to force the close back down, keeping the candle body small.

The opposite, the shooting star, would form after a trend higher. The high upper wick would indicate that buyers remain active, but the lower close would mean sellers were entering the market.

All of these candlesticks indicate a change in market sentiment for this stock, with a potential trend reversal. The entrance of so much contrary opinion should make the controlling buyers (or sellers, as the case may be) pause and reconsider their current mindset. However, all candlestick patterns require confirmation from a technical indicator prior to entering the trade.

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