What it is
The Inverted Hammer is a single-candle bullish reversal pattern that forms at the bottom of a downtrend. It's characterized by a small body at the lower end of the trading range and a long upper shadow that's at least twice the length of the body.
The pattern looks like an upside-down hammer (or the same shape as a Shooting Star, but in opposite context). The long upper shadow shows that during the session, buyers pushed price significantly higher before sellers pushed it back down - but the fact that buyers attempted this rally at all hints at changing sentiment.
The psychology
The Inverted Hammer represents the first sign of buyer interest after a sustained decline. During the downtrend, sellers have been in control. But on this session, something different happens - buyers push price significantly higher during the session.
Yes, sellers managed to push price back down by the close, which is why the body is at the bottom. But the long upper shadow is evidence that buyers are no longer completely absent. They tested higher prices and showed willingness to buy.
This is why confirmation is crucial: if the next candle closes higher, it confirms that buyers have returned with strength. If the next candle continues lower, the rally attempt failed and the downtrend continues.
Identification
- 01Prior downtrend - Pattern must appear after a meaningful decline
- 02Small real body - Body should be in the lower third of the total range
- 03Long upper shadow - At least 2× the body length (ideally 2-3×)
- 04Little to no lower shadow - Lower wick should be minimal or absent
- 01Bullish body color - Green/white body (close > open) adds confidence
- 02Volume spike - Higher than average volume confirms participation
- 03Support confluence - Pattern at known support level, trendline, or Fibonacci
- 04Bullish confirmation - Following candle closes above the inverted hammer's high
- 01No prior downtrend - In an uptrend, this shape is a Shooting Star (bearish)
- 02Large lower shadow - Significant lower wick invalidates the pattern
- 03Short upper shadow - Shadow less than 2× body shows weak buying attempt
- 04No confirmation - Without bullish follow-through, signal is unreliable
Execution framework
Conservative (Recommended): Wait for next candle to close above the inverted hammer's high before entering long.
Aggressive: Enter at the close of the inverted hammer if at strong support with additional confluence.
Place stop below the low of the inverted hammer. This is the point where the pattern is invalidated - if price breaks below, the bullish signal failed.
T1: Previous swing high or nearest resistance level. T2: Measured move equal to the pattern's total range projected upward. T3: Use trailing stop on 50% position for extended moves.
Minimum 1:2 R:R required. Confirmation entry may provide better R:R despite later entry.
Context matters
An inverted hammer is only as good as the context it appears in. The same candle shape can be a potential reversal signal or noise - the difference is where it forms and whether confirmation follows.
- 01At major horizontal support that has held multiple times
- 02Touching a rising trendline from higher timeframe
- 03At Fibonacci 61.8% or 78.6% retracement level
- 04After a steep, overextended decline (capitulation)
- 05With bullish divergence on RSI or MACD
- 06Followed by strong bullish confirmation candle
- 01In the middle of a range with no clear support
- 02Without bullish confirmation the following candle
- 03Against the dominant higher-timeframe downtrend
- 04During low-volume, choppy consolidation
- 05Below a major resistance that just rejected price
- 06In news-driven, erratic price action
Confirmation is everything. Wait for the next candle to close above the inverted hammer's high before entering - the pattern alone has only ~33% reliability.
Compare the full pattern set
Use the library to compare similar structures before deciding what the chart is actually building.