Structure of Inverted Hammer candlestickThis candlestick is formed when opening price, closing price and highest price of the session are approximate to each other.It generally have it's upper shadow longer in length, it is almost double or more than double of it,s body length.It have negligible or no lower shadow.This pattern is an upside version of Hammer candlestick.
As it is a bullish pattern, it occurs during the prevailing downtrend in the market.If it appears during an upward trend in the market, than this candlestick is named as a Shooting- star candlestick .
The closing price of Inverted Hammer candlestick type can be above or below it's opening price but the gap between these two levels should be very low.Therefore, like Hammer, Inverted Hammer candlestick can also exhibit any colour from red and green.Whatever colour it exhibit, it is always a bullish pattern. Though it is not compulsory that it will always lead to a Bullish trend reversal after it has formed.
It represents the condition shift or power takes from Bears to bulls .Here sellers starts to loose the momentum which may lead to the reversal of trend. Invertted hammer have a similar structure to gravestone Doji and this also describes somewhat similarcondition.
Trading with Inverted Hammer candlestickAs it is a Bullish candlestick pattern, it alerts about the arrival of Bulls in the market which may possibly take the price higher.
You should also use support and resistancelevels for checking trend reversals.If it forming at an effective suppoet or resistance level , or fibonacci retracement levels it increases your chances of winning this game of money. If any trading indicator signals opposite of what you are expecting from market, you are not adviced to enter the market for that particular trade.For confirmation, you can check out some of following candlestick signals:
=> check if the candlestick next to Inverted hammer is bullish and opens Gapped-up, it is a great bullish signal.
=> check if the inverted hammer is preceded by 3 or more bearish candlesticks .
Stop-loss : stop-loss can be placed at the lower point of inerted hammer or the candlestick just before it. Please not that placing stop-loss is only up to you about what risk you can take and nothing is confirmed about the future trends in the market.