Inverted Hammer Candlestick
The inverted hammer candlestick represents a possible reversal to the upside, signifying a bullish reversal. The inverted hammer candlestick is composed of a relatively small bullish body, either no, or, a small lower shadow and a significantly longer upper shadow.
Inverted Hammer Candlestick Analysis
The inverted hammer candlestick is significant when it occurs in an established down trend. It signifies a failed attempt for the rate to move lower, while also closing above the open value for that time period.
The inverted hammer candlestick becomes increasingly relevant when the following occur:
- It is composed of a small bullish body with no, or a very small lower shadow and a upper shadow of significant length.
- It is preceded by a strong down trend.
- Confirmation candles are used to confirm the reversal.
- Oversold indicators confirm a change in market direction.
Forex Trading Ideas
The inverted hammer candlestick pattern may be traded alone, or with a combination of signals and/or indicators. For example:
- Step 1 – Wait for a inverted hammer candlestick pattern to appear during an established down trend.
- Step 2 - Confirm the trend reversal with at least one confirmation candle.
- Step 3 – Further confirm oversold conditions using the RSI – Relative Strength Index*
- Once conditions 1 – 3 are met place an entry order.
*Additional confirmation ideas – confirm the inverted hammer candlestick pattern formation when it appears outside of the lower Bollinger Band or when the Stochastic Oscillator signals oversold conditions.
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