Difference Between Shooting Star and Inverted Hammer

The inverted hammer and shooting star are two of the most important candlestick patterns that are known to traders and investors in the financial market. Both those patterns do have the capability of indicating possible changes in the trend, but they differ both in their context and implications. An inverted hammer forms in a downtrend and suggests a possible bullish reversal. While a shooting star forms in an uptrend and indicates a bearish reversal. In this article, let’s look at both the inverted hammer and shooting star in detail and understand the difference between a shooting star and an inverted hammer.

Inverted Hammer vs Shooting Star

Let us first understand the difference between a shooting star and inverted hammer candlestick patterns side by side.

Being aware of these differences is crucial for traders looking to capitalise on market actions properly.

What is an Inverted Hammer Candlestick Pattern?

An inverted hammer is a bearish candlestick pattern that normally forms when the market has moved downward. A small body forms at the far left of the trading range, accompanied by a long upper shadow. This type of pattern shows that buyers tried to take the price upward during trading. However, they were not able to maintain it and took the price down near opening time.

Characteristics of an Inverted Hammer

The inverted hammer has the following characteristics. 

• Appearance: The body is small, long upper shadow, and the colour may be green (bullish) or red (bearish); still, that will not significantly affect its interpretation.
• Market Context: It appears against a downtrend background, which might mean a potential reversal. Traders tend to consider this pattern as an indication of weakening selling pressure.
• Significance: The long upper shadow indicates that buyers have been competing to control during the session but were unsuccessful in their attempt since sellers resisted it. This intense struggle between the two contenders may become a warning sign for a further change in momentum.

A trader gets the confirmation after seeing an inverted hammer when they look for another bullish candle to close above the body. If it happens, then it supports the idea that buyers are gaining strength and makes it more likely the price will continue going up. One has to observe other technical indicators and conditions of the market too while trading based on this pattern. For instance, a more relevant strength of the signal can be given if the inverted hammer appears near significant support levels or with rising volume.

What is a Shooting Star Candlestick Pattern? 

Another candlestick pattern following the uptrend is the shooting star. Similar to the Inverted Hammer, the candle has a small body at the lower end of the trading range but has a long upper shadow. However, its context is a bit different since it is associated as an indicator of a potential bearish reversal.

Characteristics of a Shooting Star

The characteristics of the Shooting Star are: 

• Appearance: The body is small and has an upper shadow. Just like the inverted hammer, it can be green or red. 
• Market Context: Since it is forming during an upward trend, it may be a bearish reversal. The traders commonly interpret this as a sign of reducing buying pressure. 
• Significance: An upper shadow this long indicates that buyers pushed prices up during the session but were unable to maintain them through closing near or below their open.

Just like the inverted hammer, traders seek confirmation for a shooting star pattern. It might even work if the next bearish candle closes below the shooting star's body. Such confirmation implies that the selling power is growing and the price is due to fall again. Additional steps for traders on this pattern would be to consider supplementary technical indicators and market conditions. For example, if it is a shooting star near important resistances or with significant volume, there is stronger evidence that the price will drop.

The Candlestick Pattern

Both the candlestick patterns have prominent roles in technical analysis. There are a few noteworthy things about both the candlestick patterns. 

Inverted Hammer:

• Reflects a probable bullish reversal during the downtrend.
• It appears at the bottom of the downtrend; thus, it is rather an important signal for entry orders in case of a potential buy signal for traders.
• The positions should be entered only after being confirmed by successive candles that are more bullish.
• It may be more valid in use with other technical indicator indices like RSI or MACD. 

Shooting Star: 

• Reflects probable bearish reversal after an uptrend.
• Stays at the top of an uptrend; this alignment of the candle is a trigger for potential selling opportunities.
• A trade should only be entered once subsequent bearish candles confirm the trade.
• If considered in isolation, the usefulness and accuracy would be best appreciated when combined with other indicators such as volume trends or moving averages.

Both patterns are important in technical analysis because they show the market sentiment and the potential movements of prices in the future. A better understanding of when to go long according to the information from the candle pattern will enable a trader to make accurate decisions to get in the market or get out of the market.

Conclusion
An understanding and identification of both the inverted hammer and shooting star candlestick are essential for trading these useful patterns. They look almost similar in terms of their construction: small bodies with long upper shadows. You can easily find these candlestick patterns and track market movements by using a share market app for real-time updates. Their signals depend on the overall market conditions. The former signals the potential for a rally after a downtrend; the latter signals bearish reversals after an uptrend. Hence, always look to have confirmation from further actions of the price while trading.