The Stock Stethoscope

The “Inverted Hammer” is a bullish candlestick pattern that forms at the bottom of a downtrend, indicating a potential trend reversal. It is a single candlestick pattern and is characterized by a long upper shadow and a small real body near the bottom of the candle. The lower shadow, if present, is typically small or non-existent.

Here are the key features of the Inverted Hammer candlestick pattern:

The candlestick has a small real body: The Inverted Hammer has a small real body, which is typically at or near the bottom of the candlestick. The color of the real body is not important, but it is often white or green, indicating bullishness.

The upper shadow is long: The upper shadow of the Inverted Hammer is long and extends at least two times the length of the real body. The upper shadow represents the high price of the day, and the fact that it is long indicates that buyers pushed the price up significantly during the day.

The lower shadow is small or non-existent: The lower shadow of the Inverted Hammer is typically small or non-existent. This suggests that sellers did not have much control during the day, and the price did not move much below the opening price.

The Inverted Hammer forms after a downtrend: The Inverted Hammer is a reversal pattern that typically forms at the end of a downtrend. The long upper shadow of the candlestick indicates that buyers have started to enter the market and are pushing the price up.

Confirmation is needed: Like all candlestick patterns, the Inverted Hammer should be confirmed by other technical indicators or price action before taking a trade. This can include looking for bullish divergence, an increase in trading volume, or a break above a resistance level.

In summary, the Inverted Hammer is a bullish reversal pattern that forms after a downtrend. It suggests that buyers have entered the market and are pushing the price up. Traders should look for confirmation before taking a trade based on this pattern.