The Inverted Hammer candlestick formation typically forms near the bottom of downtrends and can serve as a precursor to a potential bullish reversal pattern since it shows on a chart when buyers are exerting pressure to drive an asset’s price higher. It frequently occurs at the bottom of a downtrend, indicating the possibility of a positive reversal.
The upside-down hammer-like appearance of the inverted hammer pattern gives it its name. Look for a small body, a long top wick, a short lower wick, and an inverted hammer candle to identify it. Traders can predict whether prices will rise or fall based on what happens the next day after the Inverted Hammer formation.
What is an Inverted hammer candlestick Pattern?
A particular sort of chart pattern known as an inverted hammer candlestick frequently appears near the end of a downturn when pressure from buyers drives up the price of an asset. A long upper shadow that is more than twice as long as its actual body, and a very short below shadow.
The prolonged upper wick, which denotes a bullish reversal pattern, shows that bullish market participants are attempting to raise the price of an asset.
The formation of an inverted hammer candlestick occurs when bullish traders begin to feel more confident. Bulls will attempt to raise the price as high as they can, forming the top half of the wick, while bears (or short sellers) will attempt to drop the price, forming the lower part of the wick. However, the market closes at a higher price due to the too-bullish tendency.
Formation of Inverted hammer Candlestick Pattern
When the price of the open, low, and close are nearly identical, the Inverted Hammer formation results. Additionally, the upper shadow is very long and needs to be at least twice as long as the actual body.
Because prices dreaded moving down during the day, the creation of an Inverted Hammer after a protracted decline is optimistic. Prices were returned to the open by sellers, although rising prices indicate that bulls are trying to outwit the bears’ might.
When buyers exert pressure, the inverted hammer candlestick occurs on a chart, indicating a potential bullish reversal. Look for an inverted hammer candle that has a small body, a long top wick, and a short lower wick to identify it.
An upside-down hammer indicates to traders that consumers are becoming more confident in the market. Using derivatives like CFDs or spread bets, you can trade when you recognize the inverted hammer chart pattern.
How to Trade an Inverted hammer Pattern with Examples?
Interpretation: Inverted Hammer is a bullish pattern found during a downward trend. The Inverted Hammer looks like an upside-down version of the Hammer candlestick pattern. It consists of a candle with a small body and a long upper wick. This is a one-day bullish reversal pattern. Here in the TCS chart pattern, we can see that an inverted hammer formed at 3160 INR and after 2 days of IH formation it reversed its trend and started moving upwards for some days.
Difference between an Inverted hammer and a Spinning top?
Even though the Inverted Hammer and the Shooting Star formation look identical when viewed separately, their positions in time are very different. The primary distinction between the two patterns is that the Shooting Star (a bearish reversal pattern) appears at the peak of an uptrend while the Inverted Hammer does so at the bottom of a downtrend (bullish reversal pattern).
Traders might identify that the market is under pressure from buyers by looking at an inverted hammer. It gives a warning that a price reversal could occur after a bearish trend. The inverted hammer candlestick shouldn’t be seen in isolation; instead, you should always double-check any potential signals with other forms or technical indicators. The upside-down hammer-like appearance of the inverted hammer pattern gives it its name. Look for a small body, a long top wick, a short lower wick, and an inverted hammer candle to identify it.