Inverted Hammer

Implication

An Inverted Hammer indicates that the prior downtrend is about to end and may reverse to an uptrend or move sideways. This pattern is an indication of a financial instrument's SHORT-TERM outlook.

Description

An Inverted Hammer forms when the Upper Shadow is longer than the Real Body and the Lower Shadow is small or non-existent. The Inverted Hammer is the same candlestick shape as a Shooting Star, although the Inverted Hammer marks the end/reversal of a downtrend, whereas the Shooting Star marks the end/reversal of an uptrend.

Criteria that Support

The Real Body of the Inverted Hammer should "gap" away from the Real Body of the previous session. The greater the size of that gap the more important the Inverted Hammer. Measure the gap between the Real Bodies by taking the higher of the open or the close for the Inverted Hammer and comparing it to the lower of the open or close for the previous session. If the Inverted Hammer's higher value is less than the previous session's lower value then a gap is present.

The Lower Shadow of the Inverted Hammer should be almost non-existent.

The Upper Shadow of the Inverted Hammer should be as large as possible. The larger the Upper Shadow, the more important the Inverted Hammer.

It is recommended to wait for an additional bullish confirmation bar to develop before trading on an Inverted Hammer. This can come in the form of a gap up above the Inverted Hammer's real body or a white candlestick forming on higher prices.