Inverted hammer chart pattern explained

The inverted hammer is a bullish reversal pattern that occurs at the end of a downtrend. The pattern is characterized by a small body with a long upper shadow and a short lower shadow, creating a shape that resembles an upside-down hammer.

The long upper shadow suggests that buyers were able to push the price up significantly during the trading session, but then encountered selling pressure that drove the price back down. The short lower shadow indicates that there was little buying interest below the opening price.

This pattern is often seen as an indication that the bulls are starting to gain control of the market. It shows that despite the previous downtrend, buyers are starting to step in and push prices higher. However, traders should wait for confirmation before taking action, as a single inverted hammer may not be enough to indicate a significant change in trend. Confirmation could come in the form of a bullish candlestick pattern or a higher close in the following days.

How to trade Bullish Marubozu

Trading the inverted hammer pattern involves entering a long position as soon as the pattern is confirmed. The confirmation occurs when the next candle after the inverted hammer closes above its high.

  • To enter the trade, a trader would place a buy order slightly above the high of the inverted hammer candlestick, with a stop-loss order placed below the low of the pattern. The take-profit order can be set at a level where the trader expects the price to reach, or using a risk-reward ratio of at least 1:2.
  • It’s also important to consider other factors such as market trend, volume, and support and resistance levels when trading the inverted hammer pattern. These can help to confirm the strength of the pattern and improve the chances of a successful trade.
  • Finally, traders should always manage their risk by using appropriate position sizing and avoiding over-leveraging, as well as being prepared to exit the trade if the price does not move in the expected direction.

Overall, trading the inverted hammer pattern requires a combination of technical analysis skills, risk management, and market awareness.


Frequently Asked Questions

An inverted hammer is a single candlestick pattern that forms in a downtrend and is characterized by a long upper wick, a small real body, and little or no lower wick. It resembles an upside-down hammer and is also known as a shooting star.

An inverted hammer pattern indicates a potential bullish reversal in the market. It suggests that sellers were in control of the market initially but lost their momentum, and buyers took over to push the price up, causing the long upper wick. However, traders should wait for confirmation from the next candlestick before making any trading decisions.

Traders use the inverted hammer pattern as a signal to enter long positions or close out their short positions. They wait for the confirmation of a bullish reversal by looking for a green candlestick in the next trading session. They may also use other technical indicators to confirm the reversal, such as volume analysis, trend lines, and moving averages.

No, the inverted hammer pattern occurs only in a downtrend. In an uptrend, the bullish counterpart of the inverted hammer is the shooting star pattern.

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