The Inverted Hammer is a bullish reversal candlestick pattern that forms at the bottom of a downtrend, signalling a possible shift in momentum. The name “Inverted Hammer” comes from its shape, resembling an upside-down hammer. It suggests that after prolonged selling pressure, buyers attempted to push prices higher, but sellers resisted.
🔷 Characteristics
- Forms after a downtrend, indicating a potential reversal.
- Small real body near the lower end with a long upper wick (at least twice its body size).
- Little to no lower wick, meaning sellers didn’t push the price much lower.
- A green Inverted Hammer is considered a stronger signal than a red one.
📊 Market Psychology
- Sellers initially control the market, continuing the downtrend.
- Buyers attempt to push prices higher but face resistance from sellers.
- The long upper wick indicates buying pressure, though uncertainty remains.
✅ Confirmation & Limitations
- A bullish candle closing above the Inverted Hammer’s high confirms the reversal.
- High volume strengthens reliability, especially near support levels.
- Best used with RSI (oversold zone) or MACD crossover for confirmation.
- Less effective in sideways markets and requires additional indicators for accuracy.