An inverted hammer is a powerful reversal pattern that forms at the end of the downward trend and is a sign of the beginning of the upward trend and price increase.
The pattern is formed by a small body with a long upper shadow and little or no lower shadow. The body is at the lower end of the trading range, while the upper shadow is at least two times the length of the body. Traders use the inverted hammer to identify potential buying opportunities.
The key features of the inverted hammer candlestick are as follows:
The white color or empty inside of the candle is a sign of greater strength in the reversal of the trend.
The size of the shadow is usually twice the size of the main body.
The main body is formed at the bottom of the candle.
A very small shadow may also be formed in the lower part of the main body.
As the upper shadow of a candlestick grows in length, its strength increases.
The concept of inverted hammer candlestick pattern:
The inverted hammer shows that indicating that sellers are initially in control of the market and the selling pressure is still strong. buyers start to enter the market, and the price begins to rise.
The small body of the inverted hammer pattern indicates hesitance and doubt among traders. While buyers were able to push the price up, they were not able to sustain that momentum, and the price ultimately closed near the opening price.
In simpler terms, this pattern suggests that the bearish trend may be lost, and the market is being supported by buyers. This is reflected in the long upper shadow of the candlestick, which shows the high of the day that buyers were able to push the price to before closing near the opening price. This can be a long/buy signal for traders.
For making any trading decisions based on the inverted hammer pattern please note other analytical cases to confirm the strength of the signal.