Inverted Hammer Candlestick Pattern

Inverted Hammer Candlestick Pattern


An evening star pattern is a bearish 3-bar reversal candlestick patternIt starts with a tall green candle, then a… Unlike the hammer, an inverted hammer candle has a long upper wick. While trading, it is important to note that the extended upper wick should be, at least, twice the length of the body. The inverted hammer is a reversal pattern that occurs at the end of a downward trend and signals an impending upturn in price activity. The default “Intraday” page shows patterns detected using delayed intraday data.

potential reversal

In such context, the Inverted Hammer pattern occurred which second line is the High Wave basic candle. The following Black Candle, appearing at a higher trading volume, cancels the pattern. In this article, we’ve had a look at the meaning, uses, and trading strategies of the inverted hammer pattern. However, an easy way to gauge the volatility of the market, is by simply watching the range of the bars.

Dojis may signal a price reversal or a trend continuation, depending on the confirmation that follows. This differs from the hammer, which occurs after a price decline, signals a potential upside reversal , and only has a long lower shadow. On the price charts, a inverted hammer appears as a single-line pattern.

And as a sharp trader who trades based on technical analysis of stocks, it should ideally be coming naturally to you which signal to accept at what time. Traditionally this is used as a bullish reversal pattern but the right way to trade it is actually different. We will see the correct usage of inverted hammer at the end of this article which has more than 60% success rate.

  • The inverted hammer is formed when there is a surge in buying pressure, but sellers remain unfazed, which causes prices to fall and rally after hitting their lows.
  • Once trading begins, buyers cause the prices to rise and create demand.
  • The inverted hammer candlestick pattern must not be confused with a shooting star pattern.
  • Confirmation occurred on the next candle, which gapped higher before being bid up to a close far above the hammer’s closing price.

It’s important to note that the pattern does not guarantee a trend reversal. It is best used in conjunction with other technical analysis tools to confirm the signal. An inverted hammer candlestick pattern in traditional analysis is actually bullish reversal pattern. However, a more correct way to use it is presented in the encyclopaedia of candlestick charts and it is bearish continuation in nature.

If you have tall and candlesticks with long wicks, then it’s a sign that the market is quite volatile. You could use the average true range indicator to quantify your observation. Every candlestick tells a unique store about the market and how the buyers and sellers interacted. While these stories, like the one we’re going to share with you now, aren’t completely accurate, they’re perfect to get going with your own analysis of the markets. An easy way to learn everything about stocks, investments, and trading.

Psychology of the Hammer

In addition to that, you should also have a look at the time of day. For some intraday strategies, a signal that occurs at the beginning of the trading session may be very relevant, while signals during the rest of the day aren’t worthwhile at all. This candlestick pattern gives you a lot of perspective into what is happening in the market. Additionally, this candle can also give you an idea of the behavior of the bulls and bears in the market, within a particular time frame. If the pattern appears in a chart with an upward trend implying a bearish reversal, it is called the hanging man. If it appears in a downward trend indicating a bullish reversal, it is a hammer.

hammer candlesticks

In fact, there are many candlestick patterns that are commonly used by traders, and one of those is the inverted hammer. The inverted hammer candlestick pattern has an insignificant shadow at the bottom. This shows that the bears tried to maintain the downtrend in the market but they faced pressure from buyers. To differentiate an inverted hammer candlestick pattern while trading, you have to know that the inverted hammer candle forms at the bottom of a long downtrend. The inverted hammer is a type of candlestick pattern found after a downtrend and is usually taken to be a trend-reversal signal.

How to Identify Bullish Candlestick Patterns

Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media. This knowledge has helped me to level the playing field against other retail traders, and has given me an edge in the market. This allows traders to limit their potential losses in case the market does not move in their favor. Due to its nature, an inverted hammer alone cannot provide enough insights into the price movement in the market. A subsequent price action in the market will be able to validate whether the move of the bulls is confirmed or rejected.


Forming three to four bearish candlesticks before the inverted hammer pattern is also a good practice. By using these indicators to confirm a potential trend reversal, traders can increase the reliability of their trade signals. After the initial, strong, downward move, there was a bullish piercing pattern. However, in this case it was not very bullish, because of the relatively long upper wicks on both candles in the pattern. As we have seen, an actionable hammer pattern generally emerges in the context of a downtrend, or when the chart is showing a sequence of lower highs and lower lows. The appearance of the hammer suggests that more bullish investors are taking positions in the stock and that a reversal in the downward price movement may be imminent.

Stock candlestick patterns provide valuable insights into a stock’s supply and demand dynamics, giving traders and investors a bird’s-eye view of current market sentiment. Some traders may use candlestick patterns to understand market trends and plan entry or exit points. Although not as common as its counterpart signal, the hanging man, the inverted hammer can still be a useful tool – in the right hands. In this addition to my freeprice action course, I’m going to show you how to start trading the inverted hammer candlestick pattern. The hammer candlestick is a bullish trading pattern that may indicate that a stock has reached its bottom and is positioned for trend reversal.

Is an inverted hammer bullish or bearish?

This indicates that the traders have lost control of the prices and the buyers are taking over to set the pace for an uptrend. The more prominent part of the candle, which is broader than the lines on the top and/or bottom, is referred to as the real body of a candlestick. If you’re looking to take a short position, the inverted hammer can be used as an opportunity. A trend reversal or some retracement typically follows the inverted hammer. The first step in using this pattern is to identify whether or not there’s been any significant change in price action since your last analysis session or indicator update. The inverted hammer should be used with great care as it is a reversal pattern.

The is made up of a candle with a small lower body and a long upper wick which is at least two times as large as the short lower body. The body of the candle should be at the low end of the trading range and there should be little or no lower wick in the candle. Ladder bottom/top are reversal patterns composed of five candlesticks that may also act as continuation patterns.


It indicates that sellers entered the market and drove down the price, only to be overwhelmed by buyers who drove the asset price up. The price reversal to the upward must be confirmed, which means the next candle must close above the hammer’s previous closing price. Targets can be placed at previous levels of resistance that result in a positive risk to reward ratio.

This indicates that sellers have taken control of the buyers, and buyers don’t have enough power to keep the price overbought. To combine the Inverted Hammer Candlestick Pattern with price action analysis, traders can look for other bullish reversal patterns in conjunction with the Inverted Hammer. The occurrence of an inverted hammer candlestick indicates a strong bullish reversal and rejection of lower prices by the market.

What is the difference between a hammer candlestick and a shooting star?

A long shadow confirms the strength of bulls trying to push the price upward. Finally, before acting on the inverted hammer, examine your trading plan. If we spot that an Inverted Hammer appears, that’s when we understand the potential reversal is coming. Although a shadow that is twice the length of the body is confirmation in most cases, its body may sometimes be very small and its shadow is small as well. The stock price is going to take a plight back to the opening price of the day and then it is most likely going to stay around that price till the end of the trading session.

Using Bullish Candlestick Patterns to Buy Stocks

Like the Hammer, the Inverted Hammer occurs after a downtrend, and it also has one long shadow and one nonexistent shadow. Plus, they’re both bullish reversal patterns formed with just one candle! The key to identifying a Hammer versus an Inverted Hammer is the location of the long shadow. A Hammer’s long shadow extends from the bottom of the body, while an Inverted Hammer’s long shadow projects from the top.

This information has been prepared by IG, a trading name of IG Markets Limited. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.

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