Hammer & Shooting Star: Spotting High-Probability Price Rejections

1. Market & Order Flow Logic

A Hammer (bullish) or Shooting Star (bearish) is a single-candle pin-bar formation that reflects severe intraday price rejection. The hallmark of this pattern is a long shadow measuring at least 2 to 3 times the size of the real body, accompanied by minimal or no opposing wick.

The long tail proves that one side attempted an aggressive price push, but encountered a massive cluster of limit orders and aggressive counter-market orders. This total absorption drives price back to close near the open.

2. High-Probability Entry Rules

• Breakout Confirmation: Enter on the tick breach of the candle’s high (for a Hammer) or low (for a Shooting Star).
• 50% Wick Retrace Entry: Place a limit order at the 50% midpoint of the rejection tail. This entry cuts risk in half and doubles your realized RRR.
• Key Level Anchor: The rejection shadow must test a key level (such as previous day high/low, VWAP band, or institutional pivot).

3. Invalidation & Stop Loss Rules

• Hammer SL: 2 ticks below the lowest point of the lower shadow.
• Shooting Star SL: 2 ticks above the highest tip of the upper shadow.
• Never widen stops. If the wick tip is breached, the rejection hypothesis is completely invalidated.

4. Multi-Tiered Take Profit Strategy

• TP1 (60% Volume): Nearest structural pivot or session VWAP (minimum 1:2.0 RRR).
• TP2 (40% Volume): Opposite session extreme or 3.5x initial dollar risk distance.

5. Common Pitfalls & Traps to Avoid

• Freefall Hammer Trap: Catching a hammer in the middle of a steep downward impulse without key support confluence. This is usually just a temporary bear flag pause.
• Double-Wick Liquidity Hunt: Watch out for subsequent bars sweeping the wick by 1 tick to grab liquidity before the true impulse unfolds.
• Disproportionate Wicks: If the opposite wick exceeds 20% of the total candle range, the rejection power is significantly degraded.

INSTITUTIONAL DESK PRO TIP: The highest-edge Hammers occur when the wick pierces an unfilled Fair Value Gap (FVG), taps liquidity, and immediately retreats.