{"id":17328,"date":"2022-04-11T23:26:57","date_gmt":"2022-04-11T23:26:57","guid":{"rendered":"https:\/\/howtotrade.com\/?post_type=chart-patterns&#038;p=17328"},"modified":"2024-09-10T22:20:24","modified_gmt":"2024-09-10T22:20:24","slug":"inverted-hammer-candlestick","status":"publish","type":"chart-patterns","link":"https:\/\/howtotrade.com\/chart-patterns\/inverted-hammer-candlestick\/","title":{"rendered":"The Inverted Hammer Candlestick Pattern: Definition and Trading Example"},"content":{"rendered":"\n<p><strong>The inverted hammer candlestick pattern, also known as <\/strong>the inverse hammer pattern, is a type of bullish reversal candlestick formation that occurs at the end of a downtrend and signals a price trend reversal.<\/p>\n\n\n\n<p>But how do you identify this pattern on price charts? And how do you find the right entry-level and stop loss placement?<\/p>\n\n\n\n<p>Read on to learn more about one of the most significant candlestick patterns in trading \u2013 the inverted hammer candlestick pattern.<\/p>\n\n\n\n<div class=\"htt-section-highlight\">\n    <div class=\"title\">\n        <img decoding=\"async\" src=\"\/static\/img\/logo-htt-mini-blue.svg\">  \n        <span>Table of Contents<\/span>\n    <\/div>\n    <ul>\n        <li><a href=\"#what-is\">What is the inverted hammer candlestick pattern?<\/a><\/li>\n        <li><a href=\"#identify\">How to identify and use the inverted hammer candlestick pattern?<\/a><\/li>\n        <li><a href=\"#trading-strategy\">How to trade the inverted hammer candlestick pattern?<\/a><\/li>\n        <li><a href=\"#pros-and-cons\">The inverted hammer candlestick pattern &#8211; Pros and cons<\/a><\/li>\n<li><a href=\"#video\">Inverted hammer candlestick pattern (VIDEO)<\/a><\/li>\n        <li><a href=\"#key-takeaways\">Key takeaways<\/a><\/li>\n    <\/ul>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"what-is\">What is the Inverted Hammer Candlestick Pattern?<\/h2>\n\n\n\n<p>The inverted hammer candlestick pattern is a chart formation that occurs at the bottom of a downtrend and may indicate that the market price is about to reverse.<\/p>\n\n\n\n<p>In its appearance, the inverted hammer candle looks exactly like an upside-down hammer and the opposite version of the hammer candle pattern. Additionally, it has the same structure as the <a href=\"https:\/\/howtotrade.com\/chart-patterns\/shooting-star-candlestick-pattern\/\">shooting star candlestick pattern<\/a>.&nbsp;<\/p>\n\n\n\n<p>In terms of the implication of the pattern &#8211; the inverted hammer is <strong>a clear bullish trend reversal pattern<\/strong> and helps traders identify a possible reversal.<\/p>\n\n\n\n<p>This means, that when a trader identifies the inverted hammer pattern and uses it as a trading strategy, the market sentiment is likely to change and a trader will be looking for a good level to enter a long position.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"identify\">How to Identify and Use the Inverted Hammer Candlestick Pattern?<\/h2>\n\n\n\n<p>As mentioned, the inverted hammer has a very clear shape and it is fairly easy to identify this pattern on all currency pairs and in <a href=\"https:\/\/howtotrade.com\/courses\/trade-multiple-time-frames\/setting-up-multiple-charts-in-in-metatrader4-mt4\/\">any time frame<\/a>.<\/p>\n\n\n\n<p>In all cases, the inverted hammer pattern appears at the end of a downward trend and has the following characteristics: long upper shadow, short lower shadow (or no lower shadow), and a small body.&nbsp;&nbsp;<\/p>\n\n\n\n<p>As you can see in the <strong>EUR\/USD 1H chart<\/strong> below, the inverted hammer bullish pattern occurs at the bottom of a downtrend and signals a trend reversal.&nbsp;<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img fetchpriority=\"high\" decoding=\"async\" width=\"936\" height=\"464\" src=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-chart-pattern-forex-trading.png\" alt=\"inverted hammer chart pattern, forex trading\" class=\"wp-image-17331\" srcset=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-chart-pattern-forex-trading.png 936w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-chart-pattern-forex-trading-300x149.png 300w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-chart-pattern-forex-trading-768x381.png 768w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-chart-pattern-forex-trading-540x268.png 540w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-chart-pattern-forex-trading-860x426.png 860w\" sizes=\"(max-width: 936px) 100vw, 936px\" \/><\/figure>\n\n\n\n<p>In this case, the next candle following the inverted hammer candle provides a strong indication that sellers lose control. As the next candle opens higher, a long position should be taken.&nbsp;<\/p>\n\n\n\n<p>The bottom line &#8211; <strong>in order to identify and trade the inverted hammer candlestick pattern, <\/strong>follow the steps below:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Identify a downward trend<\/li>\n\n\n\n<li>Find the inverted hammer candlestick pattern at the bottom of a downtrend with a long upper shadow, short lower shadow, and small body&nbsp;<\/li>\n\n\n\n<li>Wait until the price reverse and combine other technical analysis tools to confirm the trend reversal (RSI and MACD)<\/li>\n\n\n\n<li>Enter a long buying position<\/li>\n\n\n\n<li>Set a stop-loss order below the lowest price level of the inverted hammer candlestick<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"trading-strategy\">How to Trade the Inverted Hammer Candlestick Pattern?<\/h2>\n\n\n\n<p>Trading the inverted hammer candlestick pattern requires a trader <strong>to identify the pattern at the end of a downtrend<\/strong> and enter a long position. However, as there\u2019s a high risk of entering a position at the end of a trend, it is also important to confirm the pattern with other technical indicators.&nbsp;&nbsp;<\/p>\n\n\n\n<p>For that purpose, we want to focus on two <a href=\"https:\/\/howtotrade.com\/courses\/types-of-forex-analysis\/forex-technical-analysis\/\">technical analysis<\/a> tools that will help you validate a potential trend reversal and find entry and exit levels.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Relative Strength Index (RSI) and Inverted Hammer Candlestick Pattern<\/h3>\n\n\n\n<p>The RSI is a popular trend reversal indicator that finds areas of overdemand or oversupply and may indicate a possible reversal. Usually, you\u2019ll find this indicator on any charting software including the <a href=\"https:\/\/howtotrade.com\/courses\/forex-charts\/introduction-to-metatrader-mt4-for-beginners\/\">popular MetaTrader4<\/a>.&nbsp;&nbsp;<\/p>\n\n\n\n<p>When you add the <strong>RSI indicator<\/strong> to your charting platforms, you\u2019ll be looking for a crossover around the 30 level and at the same time, the inverted hammer candlestick appears.&nbsp;<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" width=\"936\" height=\"464\" src=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-pattern-relative-strength-indicator-RSI.png\" alt=\"inverted hammer pattern, relative strength indicator (RSI)\" class=\"wp-image-17329\" srcset=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-pattern-relative-strength-indicator-RSI.png 936w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-pattern-relative-strength-indicator-RSI-300x149.png 300w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-pattern-relative-strength-indicator-RSI-768x381.png 768w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-pattern-relative-strength-indicator-RSI-540x268.png 540w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-pattern-relative-strength-indicator-RSI-860x426.png 860w\" sizes=\"(max-width: 936px) 100vw, 936px\" \/><\/figure>\n\n\n\n<p>As you can see in the <strong>EUR\/USD 1H chart<\/strong> above, the RSI helps us in identifying a trend reversal. The confirmation occurs when the candle following the inverted hammer candlestick is completed. Then, a trader will be entering a position with a stop loss below the lowest price level of the inverted hammer candle.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Fibonacci Retracement Levels and Inverted Hammer Candlestick Pattern<\/h3>\n\n\n\n<p>The second trading technique to combine with the inverted hammer pattern is <a href=\"https:\/\/howtotrade.com\/courses\/fibonacci-support-and-resistance-levels\/fibonacci-support-and-resistance\/\">Fibonacci retracement levels<\/a>. Below, we used the same chart from the first example but this time, with Fibonacci levels drawn from the lowest to the highest level.&nbsp;<\/p>\n\n\n\n<p>As seen in the chart, the inverted hammer candle occurs around the Fibonacci 38.2% level. In such a scenario, you\u2019ll be looking to enter a position when the first candle is completed above the Fibonacci 38.2% level and place a stop-loss order below the lowest price level of the inverted hammer candlestick.&nbsp;<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" width=\"936\" height=\"464\" src=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-pattern-Fibonacci-levels.png\" alt=\"inverted hammer pattern, fibonacci levels\" class=\"wp-image-17330\" srcset=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-pattern-Fibonacci-levels.png 936w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-pattern-Fibonacci-levels-300x149.png 300w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-pattern-Fibonacci-levels-768x381.png 768w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-pattern-Fibonacci-levels-540x268.png 540w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Inverted-Hammer-pattern-Fibonacci-levels-860x426.png 860w\" sizes=\"(max-width: 936px) 100vw, 936px\" \/><\/figure>\n\n\n\n<h2 id=\"pros-and-cons\">The Inverted Hammer Candlestick Pattern &#8211; Pros and Cons<\/h2>\n\n\n\n<p>These are the most common pros and cons of trading the inverted hammer candlestick pattern:<\/p>\n\n\n\n<div class=\"htt-section-points\">\n    <div class=\"points pro\">\n        <p>Pros<\/p>\n        <ul>\n            <li>Frequently occurring charting pattern<\/li>\n<li>Easy to identify<\/li>\n<li>There\u2019s potential for high rewards<\/li>\n<li>The pattern provides a good stop-loss placement (SL should be placed below the lowest level of the inverted hammer candle)<\/li>\n        <\/ul>\n    <\/div>\n    <div class=\"points cons\">\n        <p>Cons<\/p>\n        <ul>\n            <li>Risky trade as the trader buys the asset at the bottom of the trend<\/li>\n<li>Other technical analysis tools must be used to confirm a trend reversal<\/li>\n        <\/ul>\n    <\/div>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"video\">Everything About the Inverted Hammer Candle in One Video<\/h2>\n\n\n\n<p>Here\u2019s a video by our trading analysts on how to identify and trade the inverted hammer candle pattern.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<iframe title=\"How to Trade the Inverted Hammer Candlestick Pattern [Forex Chart Patterns]\" width=\"1170\" height=\"658\" src=\"https:\/\/www.youtube.com\/embed\/twGszsU8xD8?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" allowfullscreen><\/iframe>\n<\/div><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"key-takeaways\">Key Takeaways<\/h2>\n\n\n\n<p> Here are the key takeaways you need to consider when using the inverted hammer candlestick pattern.<\/p>\n\n\n\n<div class=\"htt-section-highlight -keyp\">\n    <div class=\"title\">\n        <img decoding=\"async\" src=\"\/static\/img\/logo-htt-mini-blue.svg\">    \n        <span>Key TakeAways<\/span>\n    <\/div>\n    <ol>\n<li>The inverted hammer candlestick is a charting pattern that appears at the bottom of a downtrend<\/li>\n<li>The pattern has a long upper wick and little (or no) lower wick and a really small body (the difference between the opening price and the closing price)<\/li>\n<li>It is best to add other technical indicators to confirm a trend reversal &#8211; RSI and Fibonacci retracement levels&nbsp;<\/li>\n<li>When trading the inverted hammer candlestick pattern, traders will be looking to enter a long position after the following bullish candlestick is completed<\/li>\n<li>A stop loss should be placed below the lowest price level of the inverted hammer candle<\/li>\n    <\/ol>\n<\/div>\n","protected":false},"author":108757,"featured_media":17332,"template":"","class_list":["post-17328","chart-patterns","type-chart-patterns","status-publish","has-post-thumbnail","hentry"],"acf":{"related_posts":[17395,19633,17360],"reviewer":111082},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>How to Trade the Inverted Hammer Candlestick Pattern<\/title>\n<meta name=\"description\" content=\"The inverted hammer candlestick pattern occurs at the bottom of a downtrend and may indicate that the market price is about to reverse.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/howtotrade.com\/chart-patterns\/inverted-hammer-candlestick\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta 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