Now that you’re familiar with basic candlestick patterns like spinning tops, marubozu, and dojis, let’s learn how to spot and recognise single candlestick patterns on ‘em Forex charts.
Why are they called single?
Unlike you, it is not because they are single in their 40’s living in their mum’s basement.
They are called single because they are composed of just one single candlestick.
And as you may have guessed, there are a few different types out there.
In fact, they come in two main types, each of which has a bullish and bearish version:
• Hammer (bullish) and Hanging Man (bearish)
• Inverted Hammer (bullish) and Shooting Star (bearish)
Hammer and Hanging Man are single candlestick patterns commonly used by traders for the purposes of technical analysis.
The Hammer and the Hanging Man candlesticks look identical but give different signals and occur in different conditions.
Both appear as a candle with a small body at the top and a wick at the bottom that is two or three times longer than the body. There is no wick above the body and the colour of the body is not important.
What is important is the nature of the trend in which they appear.
The bullish Hammer appears during falling markets and the bearish Hanging Man appears during rising markets.
So how do you distinguish one another?
If this single candlestick pattern appears in a chart with an upward trend indicating a bearish reversal, it is called the hanging man.
If it appears in a downward trend indicating a bullish reversal, it is called a hammer. It got its name because the market is hammering out a bottom.
As always, let’s see what these look like on an actual Forex chart.
IMPORTANT: Remember, just because you see a hammer form in a downtrend doesn’t mean you automatically place a buy order! More bullish confirmation is needed before it’s safe to pull the trigger.
How to spot a Hanging man or a Hammer on a chart:
• The long shadow is about two or three times the size of the real body.
• There is a small or no upper shadow.
• It is likely to appear within an uptrend or downtrend
• It should break a recent high/low or be near to a recent high/low
Inverted Hammer and Shooting Star are single candlestick patterns commonly used by traders for the purposes of technical analysis.
Similar to the patterns mentioned above, Inverted Hammer and Shooting Star also look identical.
Both appear as a candle with a small body at the bottom and a wick at the top that is two or three times longer than the body. There is no shadow below the body and the colour of the body is not important.
The only difference between them is whether you’re in a downtrend or uptrend.
An Inverted Hammer is a bullish reversal candlestick. It appears when prices are falling and indicates that the downtrend may have reached its bottom limit and that prices may be about to reverse upwards. An Inverted Hammer signals a buying opportunity.
Let’s see what an Inverted Hammer looks like below.
A Shooting Star is a bearish reversal candlestick. It appears when prices are rising and indicates that the uptrend may have reached its top limit and that prices may be about to reverse downwards. A Shooting Star signals a selling opportunity.
Let’s see what a Shooting Star looks like below.
And since I said that we will go into the big boy stuff in this chapter, let’s see what these look like on a Forex chart.
And that’s it!
We have now covered all single candlestick patterns!
Pretty straightforward, right?
Do you think you’ll be able to spot Hammer, Hanging Man, Inverted Hammer, and Shooting Star on Forex charts without our help? If you have 5 minutes to spare, you can practice spotting single candlestick patterns with our fun quiz here!
P.S. feel free to use this cheat pic!
Track your progress, take quizzes and receive your trader certificates.