Inverted Hammer

Inverted Hammer is a bullish reversal candlestick pattern that forms at the end of a downtrend. It signals a shift in control from sellers to buyers and is used by traders as an early entry point into a potential upswing.

What This Pattern Tells You

When this pattern appears, sellers who dominated the preceding move are losing conviction. Buyers are stepping in at lower prices with enough force to close the candle higher. The pattern represents a genuine test of the downtrend that buyers are beginning to win.

How to Trade It

Entry: Buyers showed interest up high. Enter on next bullish candle.

Stop loss: Stop below low.

Target: Aim for a measured move equal to the height of the pattern, or target the next significant support or resistance level.

Confirmation: Do not act on the pattern alone. Require at least one confirming signal such as a follow-through candle, a volume spike, or a supporting oscillator reading before entering.

When Is It Most Reliable

This pattern carries the most weight when it forms after a sustained downtrend, not a brief dip. Look for it at established support zones, previous swing lows, or round price numbers. An oversold RSI (below 30) or Stochastic at the time of the pattern significantly increases reliability. Volume on the signal candle should ideally be above average to confirm genuine buying interest.

How to Identify It

Look for the following characteristics when identifying Inverted Hammer on a chart:

• Small body at bottom of range.
• Long upper wick (2x+ body length).
• Little to no lower wick.
• Appears at support or after downtrend.

Reliability

With an 78% historical success rate, Inverted Hammer sits in the high reliability tier among candlestick patterns. No technical signal is infallible. Always define your maximum acceptable loss before entering a trade, and honour your stop loss without exception.