What is an Inverted Hammer Candle and How does It Work?
What Is an Inverted Hammer Candle?
The inverted hammer candle looks like a shooting star and is opposite of the hammer candle. An inverted hammer candle has a long shadow candle upside and doesn’t have lower shadow.
The inverted hammer candle is a bullish reversal candlestick pattern, the inverted hammer candle forms at a lower level of the support zone, and after forming a Green inverted hammer candle, we can expect for trend reversal.
A small body candle at the bottom of the candle.
A long upper wick, usually at least twice the length of the body.
Little to no lower wick.
How to spot an Inverted Hammer candle?
A downtrend precedes the candle.
The candle's body color (can be either a bullish or bearish candle).
The long upper wick stands out from the surrounding candles.
What does an Inverted Hammer candle tell us for trading?
Bears were in control at the opening of the candle.
Bulls tried to push prices up during the trading session.
Bears managed to push prices back down by the closing of the candle.
However, the long upper wick shows strong buying pressure.
How to use the Inverted Hammer in Trading?
Look for confirmation: Wait for the next candle to close above the inverted hammer's candle high.
Consider the overall trend: The inverted hammer candle is more reliable at the bottom of a downtrend.
Use with other indicators: Combine it with support levels or other technical indicators for better accuracy.
How to trade with Hammer Candles?
Entry Point for trade
Wait for the next candle to confirm the upward movement.
Look for supporting evidence like increased volume and RSI.
Consider entering when the price moves above the inverted hammer's candle high.
What should be Stop Loss?
Place stoploss order below the inverted hammer's candle below the point.
Keep your risk manageable (usually 1-2% of your account).
Consider market volatility when placing a stop-loss order.
Common Mistakes to Avoid
Even experienced traders can slip up sometimes. Here are a few things to watch out for:
Jumping the gun: Don't trade based solely on the inverted hammer appearing.
Ignoring the bigger picture: Always consider the overall market context. Market bullish or bearish trend.
Forgetting about volume: Higher volume can make the signal more reliable for upside movement.
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