Inverted Hammer

What is an Inverted Hammer?

An inverted hammer is a single-candle bottom-reversal candidate: after a decline, a bar with a small real body at the lower end of its range, an upper shadow commonly at least twice the body's height, and little or no lower shadow. The shape records a bar in which buyers drove price sharply higher and could not hold the gains into the close. Body color is secondary, with a bullish close marginally preferred.

The reading is counterintuitive: despite the failed intraday rally, the candle is treated as tentatively bullish because the attempt appears after sustained selling, a hint that demand has started to probe. Location is everything. The identical shape after an advance is a shooting star, a bearish candidate, and the hammer is its lower-shadow counterpart at bottoms. Because the bar itself closes weak, standard practice waits for confirmation, such as a bullish close or a gap higher on the next candle, before acting.

How to identify an Inverted Hammer

Shape alone is not enough; the candle only qualifies in the right location. Check in order.

1. 1Confirm the context: a downtrend or clear multi-bar decline into the candle. Without prior selling there is nothing to reverse.
2. 2Check proportions: a small real body near the low of the bar, an upper shadow at least roughly twice the body, and a minimal lower shadow. Color is secondary.
3. 3Distinguish the twin: the same shape appearing after an advance is a shooting star, not an inverted hammer.
4. 4Require confirmation: a bullish close or gap up on the following candle; many traders act only once price trades above the inverted hammer's high.

How traders use it

• As a reversal trigger with confirmation: entries above the candle's high or on the next bullish close, stop below the pattern low, ideally where the candle prints into a mapped support level.
• As a context filter: instances after extended declines or into demand areas are taken seriously; the same candle mid-range is usually ignored as noise.
• Graded by volume: some practitioners weight inverted hammers printed on elevated volume more heavily, reading the failed rally as active two-way interest rather than drift.