Inverted Hammer Bullish is a pattern that will appear when there is buyer pressure to push the stock up. This time we will learn about how to read and also use the inverted hammer bullish along with other discussions. In addition, also read other articles such as How to Recognize and Tips for Trading Bullish Divergence Stochastic.

What is Inverted Hammer Bullish

The Inverted Hammer candlestick is a pattern that appears on a chart when there is buyer pressure to push the stock price up. It is an inverted candlestick pattern that appears at the bottom of a downtrend and signals a potential bullish reversal. This candlestick pattern gets its name from the real-life Inverted Hammer. The Inverted Hammer is a bullish inverted signal after a downtrend. It tells traders that the bulls are now willing to buy the stock at a falling price. After a downtrend, there is buyer pressure in the market to push the stock price up. This tells sellers in the market to exit as they may be a reversal and tells buyers to enter their long positions as a bullish trend is about to start. But remember to confirm this signal with other technical indicators as sometimes this signal can go down. You can also wait for the next trading day to confirm the start of a bullish trend. If in the next trading session the opening price is more than the closing price of the Inverted Hammer candlestick then you can enter a long position. The Inverted Hammer candlestick formation occurs mostly at the bottom of a downtrend and can act as a warning of a potential bullish inverted pattern. What happens the next day after the Inverted Hammer pattern is what gives traders an idea of ​​whether the price will go up or not.

How to Read Inverted Hammer Bullish

The Inverted Hammer is a bullish pattern found during a downtrend. The Inverted Hammer looks like an inverted version of the Hammer candlestick pattern. It consists of a candle with a small body and a long upper wick. It is a one-day bullish inverted pattern. The bearish version of the Inverted Hammer candlestick pattern is the Shooting Star pattern.

Input: Traditionally, this candlestick pattern is recognized in relation to a certain trend direction, i.e. it may be important for the pattern if the price has been generally rising or falling. The 'Detect Trend Based' option allows you to specify which method will be used to detect the following trends:

  • SMA50 - the indicator compares the current price of the symbol with the Simple Moving Average (SMA) with a length of 50. If the current price is below the SMA, this price movement is considered a downtrend. If the price is above the SMA, it is an uptrend.
  • SMA50, SMA200 - the indicator separately compares the current price with SMA50 and SMA50 with SMA200. If the current price is above SMA50 and SMA50 is above SMA200, this is considered an uptrend. If the price is below SMA50 and SMA50 is below SMA200, this is a downtrend.
  • No detection - the indicator does not take into account price trends.
By comparing two different SMAs, the 'SMA50, SMA200' option only detects a stronger trend. When the trend is weak and the above conditions are not met, no pattern will be detected. Conversely, the 'SMA50' option will also detect a weaker trend.

Difference Between Candle Hammer and Inverted Hammer Bullish

Hammer candlestick is formed when a stock moves lower than its opening price but rallies later in the day to close above or near its opening price. The larger the lower shadow, the more significant the candle. Hammers can be found on any time frame candlestick chart. The larger the time frame chart, the more comprehensive the Hammer candle, as there are more participants involved. The chart of Emmbi Industries Ltd (EMMBI) below shows an inverted Hammer pattern after a downtrend.

 

The Hammer is a very helpful candlestick pattern to help traders visually see where support and demand are located. After a downtrend, the Hammer can signal to traders that the downtrend may be over and short positions may be closed.

Inverted Hammer Candlestick Pattern

Inverted Hammer is a type of candlestick pattern found after a downtrend and is usually considered a signal of a trend reversal. The Inverted Hammer looks like an inverted version of the Hammer candlestick pattern, and when it appears in an uptrend it is called a Shooting Star.

The pattern consists of a candle with a small lower body and a long upper wick that is at least twice as large as the short lower body. The body of the candle should be at the lower end of the trading range and there should be little or no lower wick on the candle. The long upper wick of the candle pattern indicates that buyers pushed prices up at some point during the period in which the candle formed, but encountered selling pressure that pushed prices back down to close near where they opened. When faced with an Inverted Hammer, traders often look for higher opens and closes in subsequent periods to validate it as a bullish signal.

How to Use the Inverted Hammer Pattern in Trading

When we start analyzing stocks using this Inverted Hammer candlestick pattern, there are several aspects that we must pay attention to. Here are some aspects that will help you in trading with the Inverted Hammer candlestick pattern:

1. Confirm the pattern:

There are certain confirmation criteria that traders should consider when trading using the Inverted Hammer candle.
  • Traders should first verify that the length of the upper shadow is more than twice the true body.
  • If the Inverted Hammers formation occurs with a gap down from the previous day's candlestick, then the possibility of a reversal is stronger.
  • The volume in trading should be high on the day of the formation of the Inverted Hammer candlestick pattern. High volume indicates that buyers have entered the market and are putting pressure to raise the stock price.
  • It is better to enter a long position the next day if the price opens higher.
  • Before entering into a trade, traders should consider the above criteria to confirm the bullish inverted signal given by the Inverted Hammer.

2. Psychology behind the pattern:

The previous trend should be a downtrend which means that price should make lower lows and there should be selling pressure exerted by sellers to make price go down. When this candlestick forms, it shows that bulls are back in the market and starting to put buying pressure to make price go higher and bears are not able to bring price down. If price maintains its strength even in the next trading session, one can enter a long position.

3. Don't confuse with other candlestick patterns:

Traders often confuse the Inverted Hammer and Shooting Star candlestick patterns. But it is worth noting that the Inverted Hammer occurs after a downtrend while the shooting star occurs after an uptrend. To trade when you see the Inverted Hammer candlestick pattern, start by looking for other signals that confirm the possibility of an invert. If you believe it will happen, you can trade via CFDs or spread betting. These are derivatives, which means you can trade on both rising and falling prices. To trade an uptrend, you can ‘buy’ (go long). If you think the signal is not strong enough and the downtrend will continue, you can ‘sell’ (go short). If you have a trading account, you can follow these steps to trade when you see the Inverted Hammer candlestick pattern:

  1. Login to your trading account
  2. Search for the asset you want to trade in the 'searcher' panel.
  3. Enter your position size
  4. Select 'buy' or 'sell' on the deal ticket
  5. Trade confirmation

Advantages of Using the Inverted Hammer Bullish

Here are some of the biggest advantages of this candlestick pattern form:
  1. Easy to identify Due to the length of the upper wick compared to the body of the candle itself and its occurrence near the end of an ongoing downtrend, it is quite easy to spot. This trait makes it easy for even relatively new technical traders to profit from the Inverted Hammer candlestick pattern.
  2. Market Entry Points While the Inverted Hammer candle alone is not an absolute predictor of the upcoming market trend, it can be an excellent indicator to enter the market when paired with other patterns and by watching the events of the day after the Inverted Hammer candle. Early entry after the Inverted Hammer candle pattern occurs can result in a trader profiting from an inverted bullish market.
  3. Requires less research Compared to other technical analysis patterns or fundamental analysis equations, the Inverted Hammer candlestick pattern requires a keen eye and market knowledge and can be utilized even by novice technical analysts.

After knowing the Inverted Hammer Bullish about how to read and use the pattern, then you can start trading with GIC by registering first and enjoy all kinds of features and benefits!