Have you ever heard of an inverted hammer? Let’s learn what an inverted hammer is and what aspects need to be considered when using this method in trading here!
Understanding What is the Inverted Hammer Pattern
The inverted hammer pattern is a candlestick pattern that generally shows the potential to return prices from falling prices to rising costs in crypto assets.
This bullish pattern is formed when buyers put pressure on the market so that it becomes a sign of a bullish trend that will drive up asset prices.
This pattern is trendy among technical traders looking to time entries, exits, and stop losses while trading.
Besides that, this pattern can also appear during an uptrend or downtrend. This bullish hammer pattern is rare compared to other candlestick patterns.
That’s because inverted represents indecision about whether the market will go up or down.
This pattern is also quite a bit more complex than other candlestick patterns, making it more challenging to recognize.
However, this pattern is one of the most reliable candlestick patterns to show that the price has bottomed out and is about to rise again.
How to Use an Inverted Hammer when Trading
This candlestick pattern has a long shadow at the top and no shadow at the bottom.
Usually, the length of the shadow will be twice the height of the actual body length of the candle.
If you want to identify an inverted pattern, you have to look for the shape of the pattern.
In this case, the upper axis is longer than the lower part of the body, which is shorter.
On the other hand, this form also means that the open, closed and low prices are almost identical.
You can also find this pattern in a green or red candle, which depends on the circumstances.
A green candle is formed when the low and open prices are equal. Then, when the low and close prices are nearly identical, a red candle will create.
This candlestick is usually formed when bullish traders regain confidence after sellers push the price down.
The upper shadow is formed when the bulls try to push the price up.
Meanwhile, the lower shadow is formed by the bears, which are trying to hold the price higher in this case.
Even so, the pressure from the bulls was strong enough to close at a higher price.
Important Aspects when Using an Inverted Hammer
The following aspects will help you in trading with the inverted hammer candlestick pattern.
1. Confirm the Pattern
When trading with inverted patterns, here are some specific confirmation criteria that traders should consider:
- First, the trader must verify that the length of the upper shadow is more than twice the actual body. If the inverted formation occurs with a gap down from the previous day’s candlestick, then the possibility of a reversal is more substantial;
- Second, ensure that the trading volume is high on the day of the formation of the inverted hammer pattern. The high volume indicates that buyers have entered the market and are exerting pressure to raise asset prices;
- Third, before entering a trading position, traders must consider the above criteria to confirm the bullish signal in the inverted pattern.
2. The Psychology Behind the Pattern
The previous trend must be a downward trend, in the sense that prices must make lower lows, and sellers must exert selling pressure so that prices fall.
When the inverted hammer pattern forms, it indicates that the bulls came back into the market and started to exert buying pressure to increase the price, and the bears could not bring the price down.
However, if the price maintains its strength, even in later trading sessions, one may eventually enter a long position.
3. Don’t Be Fooled by Other Patterns
As a rule, traders often confuse the inverted hammer pattern and the shooting star candlestick.
Here, it should be noted that the inverted pattern occurs after a downtrend, while the shooting star occurs after an uptrend.
What is the difference between Candle Hammer and Inverted Hammer?
The difference between a hammer and an inverted hammer candlestick is the pattern that appears on the chart of asset price movements on the market.
Candlesticks with a hammer pattern can be marked with a long wick pattern at the bottom and a short body shape at the top.
On the other hand, the inverted hammer candlestick pattern is formed like an inverted hammer, with a relatively short lower wick, a long upper wick, and a small body at the bottom.
The two patterns above usually appear at the bottom of a downtrend and become one of the signals of a bullish trend in the market.
In conclusion, the inverted hammer pattern is a candle pattern showing a potential price reversal in crypto assets.
This pattern is formed when buyers exert pressure on the market. Therefore, an inverted is a sign of a bullish trend that will drive up asset prices.
It is essential to know this pattern is one of the most reliable candlestick patterns to show that the price has hit its lowest point and will start rising again.
Do you want to learn about the types of candlesticks that are potentially profitable?
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However, before starting trading, it’s a good idea to know the updated Indodax market prices here.