Inverted Hammer |
Characteristic of Candlesticks: Reversal
Relevance of Candlesticks: Bullish
Prior Trend of Candlesticks: Bearish
Reliability of Candlesticks : Confirmation Required
Confirmation of Candlesticks: Suggested
Candlestick Patterns Key Reference |
DESCRIPTION
Inverted Hammer is a reliable pattern which indicate a trend has come to the end and it is about to reverse.
Inverted Hammer pattern is recognized by a long upper shadow as shown from the second candlestick (Inverted Hammer) with a small real body and the previous candlestick have a long bearish real body.
It looks like a shape of the Bearish Shooting Star. The Shooting Star which appears in a downtrend will be recognised as a bullish Inverted Hammer pattern.
PATTERN RECOGNITION
1. Inverted Hammer pattern can be identified by downtrend.
2. Refering to above diagram, we will firstly see a bearish candlestick formed at the bottom of a downtrend.
3. Then we will see the second candlestick is formed at the lower end of the previous candlestick.
4. The (bull/bear) of the candlestick is not significant, however the first candlestick is a bearish candlestick.
5. No gap down below the previous candlestick is required when Inverted Hammer formed as long as it is seen after a downtrend.
6. The upper shadow of the second candlestick (Inverted Hammer) small body should be at least twice as long as its real body.
7. The second candlestick (Inverted Hammer) does not have lower shadow or only very little lower shadow.
EXPLAINATION
The Inverted Hammer pattern is a sign of trend reversal.
When the second candlestick (Inverted Hammer) is formed, the market opens at or near its low.
Then the price change in direction and we will see a short-term rally.
However the bulls cannot substain its strength during the rest of the day and the prices came down and close at or near the low of the previous candlestick.
Although we see the inverted hammer does not give us a clear potential reversal signal, but if the next candlestick opens above the real body of the inverted hammer, that means those who shorted at the opening or closing of the inverted hammer is in the losing position.
The longer the market holds above the inverted hammer's real body, the more likely these sellers will intend to close their sell orders.
This may initiate a rally as a result by the closed sell orders, giving buyer a chance to go for long position.
The Consolidation Patterns imply that the trend may have ended and may go sideways. There is a possibility of a reversal but would require confirmation in the next session.
POINT TO NOTE
A confirmation is required in a form of a bullish candlestick which open above the inverted hammer's real body. The larger the gap the stronger the confirmation.
A bullish candlestick with a higher close act as an affirmation.
CANDLESTICK PATTERNS KEY REFERENCE
Irrespective of Color (Can be bullish or bearish) |
Uptrend |
Consolidation |
Downtrend |
ANTICIPATED DIRECTION OF TREND
Lighter Arrow = Lower Probability
Solid Arrow = Higher Probability
More Likely to go sideway, Less likely to rally
|
More likely to rally, Less likely to go sideways
|
More likely to go sideway, Less likely to fall
|
More likely to fall, Less likely to go sideways |
