Summary: The Inverted Hammer Candlestick is a bullish reversal pattern that appears after a downtrend. It has a small body at the bottom and a long upper wick, showing that buyers are trying to take control. This pattern suggests a possible price reversal, especially when confirmed by a next strong bullish candle close above the inverted hammer.
Ever noticed a candlestick with a small body and an long upper wick, right after a strong downtrend? That might be an Inverted Hammer Candlestick
In this blog post, we’ll learn about the Inverted Hammer Candlestick Pattern, how to identify it, trading strategies, examples, and important tips to consider while trading with it. So, let’s get started!
What is an Inverted Hammer Candlestick Pattern?
The Inverted Hammer is a bullish reversal pattern that forms after a downtrend. It looks like an upside-down hammer. A small body at the bottom, with a long upper wick and almost no lower wick.
It signals that buyers tried to push the price higher, and even though they didn’t fully succeed (yet), the selling pressure might be weakening.
Key features of a Inverted hammer:
- It appears at the bottom of a downtrend.
- Has a small real body at bottom (green)
- Has a long higher wick (at least twice the size of the body)
- Little or no lower wick
Psychology Behind the Pattern
Example 1: Nifty 50 Inverse Hammer Candlestick Formation Analysis
Here, you can see the above example of the market falling, and suddenly, in a single candle session, prices create new high but then reverse and close near the open price. This means buyers tried to push prices, but sellers are also present and they also try to create new lows, but this session shows buyers entering and sellers losing strength, and this scenario shows that buyers are interested, and if the next candle supports, then the market will shift the trend.
This scenario tells traders that the downtrend might be losing strength and a bullish reversal could follow.
What does inverted hammer mean?
- Buyers’ Attempt: The long upper shadow shows that buyers tried to push the price higher during the session.
- Sellers’ Resistance: After the upward attempt, sellers managed to bring the price back down near the opening level.
- This tug-of-war suggests that while sellers are still present, buyers are beginning to enter the market, hinting at a possible reversal.
In short, an Inverted hammer is a bullish candlestick reversal pattern that shows a bullish potential trend reversal signal.
How to Identify a Inverted Hammer Candlestick Pattern
To confidently find a Inverted hammer, follow these simple steps:
| Criteria | Important Points |
| Trend Direction | Appear after a downtrend (near support level) |
| Body | Small real body near the bottom |
| Upper Shadow/Wick | Must be at least twice the length of the body |
| Lower Shadow | Very small or nonexistent |
Look for confirmation on the next candle that breaks the high of the Inverse hammer top weak.
How to Trade the Inverse Hammer Candlestick Pattern
Here’s a simple way to trade the inverted hammer
First, find a clear downtrend and wait for an inverted hammer candle to form at a support level. Now, wait for confirmation with the next bullish candle close above the high of the Inverse Hammer weak.
Entry
Enter the trade when the next candle closes above the Inverse hammer’s high.
Stop Loss
Place the stop loss below the low of the candle.
Target
Use recent resistance levels or a risk-reward ratio of 1:1 or 1:2 accordingly.
Note: Always wait for confirmation from the next candle before entering a trade.
Pros & Cons of Inverted Hammer Pattern
Pros
- Useful early signal for potential reversals.
Cons
- False signals during volatile markets.
- Less accuracy
Common Mistakes to Avoid
Avoid these mistakes to get more accuracy with the Inverted hammer candlestick pattern. Here are some comment mistakes:
Traders place trades without confirmation, Some traders also confuse the Inverted hammer with the shooting star, which looks similar but appears after an uptrend, ignoring the overall market structure & random trade in a sideways market.
Conclusion
So in this Inverted hammer trading guide, you’ve learned:
- What is the Inverted Hammer Candlestick Pattern
- Psychology Behind the Pattern
- How to Identify a Inverted Hammer Candlestick Pattern Perfectly
- How to trade Inverted hammer like a PRO
- PROs & Cons with Common mistakes to avoid
Now I want to know…
How do you trade the hammer candlestick pattern?
Leave a comment below and share your thoughts with me.
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Happy Trading…..