The Inverted Hammer Candlestick Pattern
The Inverted Hammer candlestick pattern is a type of Hammer that occurs after a downtrend. It is often used as a bullish trend reversal signal.
In this article you will learn:
- What is a Inverted Hammer candlestick pattern
- How to identify and interpret a Inverted Hammer candlestick pattern
- Trading techniques after confirming a Inverted Hammer candlestick pattern
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What is a Inverted Hammer candlestick pattern?
The Inverted Hammer is a candlestick pattern that occurs that occurs after a downtrend. It is a type of Hammer and represents a bullish trend reversal.
At market open, buyers push the price of the stock up to the high of the day. At this point, sellers step in and push the price of the stock back down to the low of the day where the market then closes. This is considered to be bullish because there is hesitation in selling pressure to continue the downtrend due to the high buying pressure early in the trading session.
How to Identify a Inverted Hammer Candlestick Pattern
Because the Inverted Hammer pattern occurs in a downtrend, our suggestion is to look at the previous 3 trading periods to verify if the downtrend is confirmed. To confirm a Inverted Hammer, the candlestick must have a large upper wick, typically twice the size of the body. Also, there must be little to no lower wick, and the body should be less than average body size of the previous 20 trading periods.
Trading Techniques for the Inverted Hammer Candlestick Pattern
It is recommended to wait one trading day to confirm the Inverted Hammer pattern. If the following day is a bullish candle, this could indicate a successful bullish reversal in the stock. However, if the following day is bearish, this could indicate that the pattern has failed and the downtrend could still continue.