Inverted Hammer

The bullish Inverted Hammer candlestick is a one day bullish reversal pattern. It occurs when the open price is lower, then the stock price trades higher, but closes near its open, therefore looking like an inverted lollipop.

Inverted Hammer

The bullish Inverted Hammer candlestick is a one day bullish reversal pattern.

 


Inverted Hammer Identification

In a downtrend, an Inverted Hammer occurs when the open price is lower, then the stock price trades higher, but closes near its open, therefore looking like an inverted lollipop.  Note that in an uptrend, the Inverted Hammer is called a Shooting Star.

Inverted Hammer candlestick


Interpretation of Inverted Hammer

In a market characterized by downtrend, bulls are able to rally price up briefly, but not enough to close above the days open. This can be a warning for shorts to anticipate a further, more sustainable bullish rally.  The reversal trend is confirmed by bullish moves the next day.

The day after the Inverted Hammer occurs, the higher the candle holds above the previous body, the more likely the shorts will cover their positions, leading to the weakening of a bearish market.  Many buyers will enter the market once that occurs, leading to a bullish reversal.  Confirmation is highly recommended for the Inverted Hammer.


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