The inverted hammer candlestick pattern provides important information on the momentum of the stock in that particular moment, the inverted hammer can help to identify possible reversals by the price of the underlying asset.
The inverted hammer candle has a small body and a long upper wick in relation to the lower shadow that is quite small or non-existent. The figure usually appears in the final phase of a downtrend and signals a possible upside reversal.
The psychology of this candlestick is that the length of the upper wick suggests that buyers have sought to push the price higher, although the validation of this move is only confirmed through further development of price action.
How to identify an inverted hammer candlestick pattern?
– The inverted hammer, has a small-bodied candle, with a long upper wick and a short or non-existent lower wick
– It appears at the bottom of a downtrend
– The signal is strongest when the candle develops near important support levels
– Trend reversal (bullish reversal)
-Lower price rejection (often at a key level)
How to trade it?
If the inverted hammer candle immediately generates a new uptrend, traders can enter the market at the beginning of it and take advantage of the full move, it’s easy to Identify. The inverted hammer is easy to identify on a price chart.
– Wait for confirmation, see how the next candle develops and see if an uptrend it’s starting.
– Put the Stop-loss below the inverted hammer or support levels.
– Sometimes there is a retest on the support created by the inverted hammer. A trader can place orders on the support level to catch a better price.