Inverted Hammer Candlestick Pattern?

Candlestick patterns are a great way to spot changes in investor sentiment and possible reversal points in the price of an asset. However, the inverted hammer candlestick chart pattern can be easily confused with other candlestick patterns such as the harami or the hanging man. This article takes an in-depth look at what the inverted hammer candlestick pattern is, how you can trade using this pattern and how you can leverage it while performing technical analysis to help gauge risk and make better trading decisions.

What is the inverted hammer candlestick pattern?

With candlestick patterns, the inverted hammer may not be the most commonly seen pattern. But, it can provide traders with an indicator of upcoming movement in the direction of the prevailing trend.

The inverted hammer candlestick pattern has become popular among technical traders who are looking to time their entries, exits and stop-losses more accurately. This pattern can also appear in both uptrends and down trends. Additionally, it is similar to the hammer candlestick pattern except that it has a long lower shadow with little or no upper shadow. The trend will be reversed in the direction of the preceding trend when an inverted hammer pattern appears, and it can be used as confirmation of a reversal in an existing trend.

Inverted hammer candlestick patterns occur when the open and close prices of securities are almost identical, but they are considerably lower than the middle price of the day. This pattern is quite rare compared to the other candlestick patterns as it represents indecision among traders whether the market will go up or down. Inverted hammer candlestick patterns are bearish reversal patterns that indicate selling pressure. They’re a bit more complex than other candlestick patterns, which can make them harder to spot, but they form important reversals that show the market may be slowing down from its uptrend.

The inverted hammer candlestick pattern, which resembles the shape of an inverted hammer, is one of the most reliable candlestick patterns to indicate that price has reached its low point and will soon begin rising again in the future. Like its more popular cousin, the hanging man candlestick pattern, the inverted hammer indicates that bulls are losing control of price movement and that bears are preparing to take over.

This candlestick pattern is characterized by two important features that distinguish it from its long-bodied counterpart:

• First, the low or open is at least halfway between the high and low of the previous day.
• Second, the body of this candlestick does not go beyond the midpoint of the range between the open and close of the previous day.

The inverted hammer candlestick pattern is considered to be neutral in terms of sentiment, meaning that it can either foreshadow an upcoming fall or rise in price, depending on whether the pattern occurs at the top or bottom of a trend.

How to identify the Inverted Hammer Candlestick Pattern?

The inverted hammer candlestick pattern indicates a bullish reversal or short-term downtrend reversal. An inverted hammer occurs after a prolonged sell-off when prices are near their lows for that period. It's easy to spot on a chart because it resembles an upside-down, hanging shooting star candlestick formation. The body can be either white or black, but often it will be black, signifying buying pressure at that low price. The shadow of an inverted hammer can be long or short; if it is longer than its body, then there was greater buying pressure at that low price compared to selling pressure.

Therefore, it should only be used for technical analysis purposes, rather than fundamental ones. As with other forms of technical analysis, there are many different rules for how traders interpret inverted hammer candlesticks based on various indicators and trading strategies.

One example strategy involves using a typical upside-down version of this candlestick chart pattern as a possible bullish reversal signal that can lead to higher prices soon if it appears after a significant downtrend in price activity. Inverted hammer candlesticks may also appear during periods when no clear direction is evident within a trend. In these cases, a strong argument could potentially be made for both continuation and reversal signals based on their position within trending or ranging market activity.

How to trade using Inverted Hammer?

The inverted hammer candlestick has a long lower wick that extends past its body. However, it can still be identified by its long lower shadow, which will have slightly more weight to it than an average shadow. The colour of an inverted hammer matters little, though it tends to be either red or green.

For example, an inverted hammer close above resistance levels could indicate a potential resurgence in a downward trend. This does not mean that prices would immediately start rising once they retest those previous highs – they might test lower – but it would suggest continued downward movement before any significant gains were made over time.

A downward sloping 10-period moving average would help confirm such a bearish expectation as well as support the interpretation of an inverted hammer occurring beneath those particular resistance levels. Additionally, there are many other ways to use inverted hammer candlesticks for technical analysis purposes depending on your preferred methods and interpretations from historical data related to those patterns in various markets worldwide over time.

Final Words

The inverted hammer candlestick pattern occurs when a large bearish candle has a smaller, indecisive follow-through candle above it. It's a sign that selling pressure has started to fade and buying pressure is picking up. When analyzing an inverted hammer candlestick pattern, it is important to also consider other related market indicators, such as price movement over time, overall market volatility, volume activity, etc., which can offer additional information regarding whether or not you should take action based on your inverted hammer signal.