Japanese candlesticks - Inverted hammer
Definition: An inverted hammer structure is comprised a single Japanese candlestick. The candlestick has a small body, bullish or bearish, with a long high wick which is at least twice as long as the body. The closing price of the next candlestick must be higher than the top of the hammer.
Characteristic: An inverted hammer often forms after a significant drop characterized by several large red Japanese candlesticks. If the pattern is formed after a bullish trend, it is called a shooting star.
Significance: An inverted hammer is a reversal pattern, it indicates a bullish trend reversal. This reflects increasing buying pressure, with a temporary takeover during the candlestick’s life.
Note: It is preferable if the candlestick is bullish, this reinforces the hammer’s relevance but a bearish candlestick does not invalidate the pattern. The ideal is an inverted hammer doji. The larger the shadow and the smaller the body, the stronger the pattern.
Inverted hammer doji
Invalidation: If the next candlestick is not bullish or does not open on a bullish gap, the inverted hammer is invalidated.