Inverted Hammer
The inverted hammer appears at the bottom of downtrends. It has a small body at the bottom with a long upper wick, showing that buyers attempted to push prices higher during the session.
Formation
- 1.Small real body at the lower end of the trading range
- 2.Long upper shadow (at least 2x the body length)
- 3.Little or no lower shadow
- 4.Forms after a downtrend
Psychology
Buyers attempted to push prices higher during the session but couldn't hold the gains. However, their effort shows buying interest is emerging, and with confirmation, the downtrend may reverse.
Trading Tips
- ✓Requires stronger confirmation than regular hammer
- ✓Wait for next candle to close above the body
- ✓More significant at support levels
- ✓Combine with volume analysis
Confirmation Signals
- →Strong bullish candle following the pattern
- →Gap up on the next open
- →Increased volume on confirmation
- →Break above the inverted hammer's high
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Common questions about this pattern
The inverted hammer is a bullish reversal pattern when it appears after a downtrend. Despite the selling pressure shown by the upper wick, it signals buyers are attempting to reverse the trend.
It's moderately reliable but requires confirmation more than a regular hammer. The long upper wick shows sellers are still active, so always wait for the next candle to confirm the reversal.
They look identical but context matters: inverted hammer appears after a downtrend (bullish), while a shooting star appears after an uptrend (bearish).