The Inverted Hammer is one of the most powerful bullish reversal patterns traders can spot after a strong downtrend. It's formed when the opening, low, and closing prices are almost the same, with a long upper shadow that is at least twice the length of the candlestickโs real body. This pattern tells a story: though sellers tried to push the market lower, buyers stepped in, sending prices higher, which signals that the bulls are testing the bears' strength.
Is ๐๐ต๐ฒ ๐๐ป๐๐ฒ๐ฟ๐๐ฒ๐ฑ ๐๐ฎ๐บ๐บ๐ฒ๐ฟ ๐๐๐น๐น๐ถ๐๐ต ๐ผ๐ฟ ๐๐ฒ๐ฎ๐ฟ๐ถ๐๐ต?
After a long downtrend, the appearance of an Inverted Hammer is typically bullish. It suggests that while bears are still present, they are beginning to lose control, and bulls are stepping in to challenge the downward pressure. Prices close near the open, but the overall upward price action shows that momentum could be shifting.
๐๐ฟ๐ฒ๐ฒ๐ป ๐๐. ๐ฅ๐ฒ๐ฑ ๐๐ป๐๐ฒ๐ฟ๐๐ฒ๐ฑ ๐๐ฎ๐บ๐บ๐ฒ๐ฟ
The color of the Inverted Hammer matters too. When the opening and low prices are the same, creating a green Inverted Hammer, this is seen as a much stronger bullish signal than a red one. A green Inverted Hammer demonstrates even more buying pressure, indicating the bulls' growing confidence.
๐ช๐ต๐ฎ๐ ๐๐ผ๐ฒ๐ ๐๐ต๐ฒ ๐๐ป๐๐ฒ๐ฟ๐๐ฒ๐ฑ ๐๐ฎ๐บ๐บ๐ฒ๐ฟ ๐ง๐ฒ๐น๐น ๐ฌ๐ผ๐?
In Chart 2 of the S&P 500 Futures contract, we can see how an Inverted Hammer can signal the end of a downtrend. The market gapped down at the start of the day, but bulls pushed prices higher until they hit resistance. The day closed below the open, but this pattern was followed by a bullish green candle the next day, showing a confirmed trend reversal. Traders who spotted this pattern, plus the breakout of the downward trendline, saw a clear signal to go long.
๐๐ผ๐ ๐๐ผ ๐ง๐ฟ๐ฎ๐ฑ๐ฒ ๐๐ต๐ฒ ๐๐ป๐๐ฒ๐ฟ๐๐ฒ๐ฑ ๐๐ฎ๐บ๐บ๐ฒ๐ฟ
While the Inverted Hammer signals a potential price reversal, itโs crucial to wait for confirmation before making a trade. This could be in the form of a trendline break or a bullish confirmation candle the following day. Never trade solely based on this pattern; use other indicators and price action to confirm the reversal for a higher probability of success.
๐๐ผ๐ป๐ฐ๐น๐๐๐ถ๐ผ๐ป
The Inverted Hammer is a bullish signal worth paying attention to in your trading strategy. After a long downtrend, spotting this pattern can be the key to identifying potential upward momentum. Always pair it with confirmation to ensure the highest chance of success!
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