Let’s continue on our journey of profitable candlestick patterns, powerful Forex indicators that have a high probably of success. Previously I talked about how a hammer hammers out the bottom and leads to a reversal uptrend, and about how a shooting star foretells a quick downtrend reversal. Then what is an Inverted Hammer?
Looking like a Hammer upside down, an Inverted Hammer also exhibits the same characteristic as a Hammer, leading to upward trend reversal. Therefore, the upper shadow is optimally at least 2 times larger than the body, the lower shadow had better to be of little to no size, and the color of the body doesn’t matter much.
And the implication of the Inverted Hammer is easy to figure out, too. During an apparent downtrend, bears had been in definite control until bulls showed up and pushed the price to the daily high. Though bulls failed to keep the price, only leaving a long upper shadow sticking to the air, Forex traders should be aware that the market Sentiment may have changed. Japanese people always treat downtrend reversal signals cautiouly; they say that in a downward trending market, Forex traders need to watch the second day closely for a bullish signal to confirm.
While you may already find out that Inverted Hammer looks exactly the same as Shooting Star, but serve completely functions. Why is that? As I always have said, a wise Forex trader not only recognize a candlestick pattern, but also attempt to understand the underlying mechanism. During an uptrend, this formation tells that the Bulls cannot even on the high range of the day, and of course this signifies the diminishing power of the bulls. However, during the downtrend, the bulls made the high of the day. Although this cannot keep up, still tells Forex Investors that bulls have stepped in.