The Inverted Hammer Candlestick Pattern

Hanging Man and Hammer

The Inverted Hammer Pattern

The Inverted Hammer pattern is a bullish trend reversal pattern that is similar to the Shooting Star in appearance. It consists of a single candlestick, which is called an inverted umbrella line because it has short real body, a long upper shadow and little or no lower shadow. The Inverted Hammer is also similar to the Hammer pattern in that it is a bullish signal that appears in a downtrend and warns of a possible trend reversal. As with the Hammer, the color of the Inverted Hammer candlestick is less significant than the length of its upper shadow. The upper shadow should be at least twice the size of the Inverted Hammer's real body; and the longer the upper shadow is, the more significant the reversal pattern becomes.

In other words, the long upper shadow of the Inverted Hammer is the more bullish signal that overrides the color of the candlestick's real body. It indicates that strong demand for the underlying instrument emerged during the session forcing the price up but bearish sentiment was able to reassert control, forcing the price back down to close at or near the low for that period. This candlestick is an early indicator of the emergence of demand for the underlying that could drive the price up. This could potentially mark the start of a new uptrend.