One of the most important candlestick formations that a trader can learn is without a doubt the “Hammer” or “Shooting Star”. In a nutshell, these candles can show a potential reversal of the trend. They tend to congregate at important inflection points in the markets, and can often predict a sudden move in the other direction. 

One of the main reasons they work is that so many people are familiar with them. It is probably the first candlestick a lot of traders learn. While they have different names, they are essentially the same thing: A representation that exhaustion is setting in for the market and it could reverse course soon.

The names are used depending on what direction the market is heading. When the market has been rising, the formation is called a shooting star. When the market has been falling, it is called a hammer, mainly because of the fact that it looks like one. When you see one of these candles, it might be time to get ready to head in the other direction soon. Having said that, let’s take a look at these formations