Inverted Hammer

The Inverted Hammer is a bullish reversal candlestick pattern that could indicate a potential reversal at the end of a downtrend. It looks similar to the Hammer pattern but is inverted, hence the name.

The bearish version of the Inverted Hammer candlestick pattern is the Shooting Star pattern.

Here's a breakdown of the Inverted Hammer pattern:

  1. The pattern consists of a single candlestick with a small body at the lower end, a long upper shadow (or wick), and little or no lower shadow. The long upper shadow should be at least twice the length of the body, which suggests that buyers pushed the price significantly higher during the time period, but sellers were able to push the price back down to near the opening price.

  2. The color of the body is not as critical in this pattern. A green or white body (indicating that the closing price was higher than the opening price) is considered slightly more bullish, but a red or black body can also produce a valid Inverted Hammer pattern.

  3. The Inverted Hammer pattern appears during a downtrend. The long upper shadow shows that buying pressure was present, but the fact that sellers were able to push the price back down to near the opening price shows that selling pressure is still present.

  4. Confirmation of the pattern's bullish signal comes if the next candlestick after the Inverted Hammer is bullish and closes above the Inverted Hammer's close. This would suggest that the buyers have taken control and that the downtrend may be about to reverse.

As with all candlestick patterns, the Inverted Hammer should be used in conjunction with other forms of technical analysis for confirmation. Traders often look for other signs of a potential reversal, such as an increase in buying volume or bullish signals from technical indicators.

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