How to use an Inverted Hammer Candlestick Pattern?

The inverted hammer candlestick is one of the most popular Candlestick patterns amongst traders today. Just like other significant candlestick patterns, an inverted hammer provides a trader with accurate data about the market sentiments. In this article, we will discuss what an inverted hammer is, What it means, and how to use it.

What is an inverted hammer candlestick pattern?

An inverted hammer is a candlestick chart pattern that signals a potential bullish reversal in a down trending market. The inverted hammer has a long upper shadow or wick and a small body at the bottom of the candlestick. The long upper shadow indicates that buyers were willing to enter the market at lower prices, but sellers pushed prices back down before the close of the period. The small real body shows that there was little difference between the opening and closing prices during the period. The inverted hammer is a single candlestick pattern, so it doesn’t have any specific requirements in terms of preceding price action or indicators. However, it is generally considered more significant when it occurs after a prolonged downtrend.

The inverted hammer is often considered a bullish reversal pattern, which means It marks the end of a downtrend and the beginning of an uptrend. However, it is important to wait for confirmation before entering any trades. One way to confirm an inverted hammer is to look for price action following the pattern. If prices move higher in the next period, this would be considered a confirmation of the reversal.

How to identify an inverted hammer candlestick pattern?

The inverted hammer candlestick pattern is a bullish reversal pattern that can be found at the end of a downtrend. To identify an inverted hammer candlestick pattern, look for the following:

Inverted hammer candle

  1. The candlestick should have a small body 
  2. a long upper shadow (wick) 
  3. And no lower shadow, or a very small lower shadow.

What does an inverted hammer candlestick pattern mean?

It is important to understand what an inverted hammer Candlestick pattern denotes before taking a trade using it.  The inverted hammer candlestick pattern signifies that the bears are losing control and the bulls are taking over. And when an inverted hammer is found on a key area of value ( demand zone) it is considered to be a Stong Bullish signal.

How to trade using an inverted hammer candlestick pattern?

trade with inverted hammer

An inverted hammer candlestick pattern is a bullish reversal pattern that can be used to take up a long position. However, there are certain things to keep in mind before taking up a long position. Firstly an Inverted Hammer candlestick Should only be traded when the price is near a very strong support zone or demand zone.

Secondly, whenever trading an inverted Hammer, always look for confirmation. For example, the price breaks the high of the Inverted hammer candle. 

 And lastly, No tool, indicator, or pattern is 100% accurate. So keep a tight stop loss order placed.

Conclusion

The inverted hammer candlestick pattern is a great way to spot potential reversals in the market. It can be used in any timeframe and in any market, making it a versatile tool for traders. By understanding how to identify and trade the inverted hammer pattern, you can add another weapon to your trading arsenal.

 

Author

  • Tricia Scone is a Trading and Investing Enthusiast and has trained thousands of people in various complex courses of finance. She has a unique way of providing Complex Financial knowledge in simpler words. which is why she is regarded as one of the most popular finance coaches in the world.

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