Types of Single Japanese Candlestick Patterns

Types of Single Japanese Candlestick Patterns

There are four basic types of single Japanese candlestick patterns and they are the Hammer, the Hanging Man, the Inverted Hammer and the Shooting Star. Most technical analysts use them to pin point potential market reversals.

The Hammer and the Hanging Man

Hammer Candlestick

Both the hammer and the hanging man are the Japanese candlestick patterns that pin point a trend reversal. They are exactly similar in their patterns and components except the type of trend in which they present – uptrend or downtrend. If the pattern shows in a chart with a downward trend signaling a bullish reversal, it is a hammer. If it shows in an upward trend signaling a bearish reversal, it is called the hanging man.

Similarities of the hammer and the hanging man are as follows:

The real body is located at the top of the single candlestick
The length of long bottom vertical line or the lower shadow should be at least two times longer than the real body.
Little or no top vertical line.
Although both have different color on their real body, their color is insignificance.

Hanging Man Candlestick

The length of the bottom vertical line is quite crucial as it shows the demand for that particular asset pushed the price back up towards one-third of the real body of the candlestick for that period. Usually, this is regarded as a bullish signal. As it appears to be a bearish reversal pattern, you still need to confirm that the candlestick is the hanging man before entering. For confirmation, it is ideally to check that the price of the subsequent candle closes below the real body of the hanging man.

Since the hammer is a bullish reversal pattern, it is not necessary to look for confirmation as the pattern also shows a strong resistance level. The long vertical line shows that the sellers were pushing the prices down in the early session in keeping with the bearish trend, however, the buyers retaliated by driving the prices back up towards one-third of the real body at the end of that trading period.

Beside looking for confirmation from the subsequent candles, it is also advisable to use other technical indicators such as trading volume or the Relative Strength Index (RSI) to assist you in your trade as well.

The Inverted Hammer and the Shooting Star

Shooting Star Candlestick

The inverted hammer and the shooting star share the same appearances except the type of trend in which they present, either uptrend or downtrend. Both candlesticks have small little bodies either red or green, long top vertical lines and short or no bottom vertical lines.

The inverted hammer happens in a downtrend and it depicts the possibility of a trend reversal or support. It is a bullish reversal pattern. Its long top vertical line indicates that earlier the buyers were pushing the prices up from the opening price. However, the sellers step in and battered the prices back down sharply. It was fortunate that the buyers retaliated and managed to end the session closed to the open.

The shooting star which is a bearish reversal pattern, happens in an uptrend. Its shape shows that the opening price is at the bottom, rallied but ended back closed to the low. The buyers tried to bulldozed the prices up but the sellers step in and pushed it down.