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To evaluate the performance of the pattern in your stock exchange within the context of other global markets, please refer to the table below. Locate your stock market to see its ranking among others. This will provide insights into the pattern’s strength and reliability, aiding you in your buying and selling decisions.
BULLISH INVERTED HAMMER
Definition
The Bullish Inverted Hammer pattern features a black (or red) candlestick followed by an Inverted Hammer, which has a long upper shadow and a small body. While it resembles the Bearish Shooting Star in shape, the Inverted Hammer appears during a downtrend and signals a potential bullish reversal, unlike the Shooting Star.
Recognition Criteria
1. The market is currently defined by a dominant downward trend.
2. On the first day, a black candlestick is observed.
3. On the second day, a small body is observed near the lower end of the trading range. The color of this body is not important.
4. For the second candlestick, the upper shadow should be at least twice the length of the body.
5. There is (almost) no lower shadow.
Pattern Requirements and Flexibility
The body of the Inverted Hammer should be small. The upper shadow should be at least twice the length of the body and should not be shorter than an average candlestick length. Ideally, there should be no lower shadow or only a very tiny one. The bottom of the Inverted Hammer should be lower than the body of the preceding candlestick.
Trader’s Behavior
In a bearish market, the emergence of a black candlestick on the first day underscores the prevailing bearish sentiment. The following day, characterized by an Inverted Hammer, opens at or near its low and subsequently rallies. However, the bulls are unable to sustain this upward momentum throughout the day, resulting in a close at or near the day’s low. This type of price action can be interpreted as a potential reversal signal, contingent upon the market’s behavior on the subsequent day. If the next day’s opening price exceeds the body of the Inverted Hammer, those who initiated short positions at the open or close of the Inverted Hammer day will experience losses. The longer the market remains above the Inverted Hammer’s body, the greater the likelihood that short sellers will cover their positions, potentially igniting a rally. This rally may, in turn, entice bottom pickers to initiate long positions, further driving prices upward.
Buy/Stop-Loss Levels
The confirmation level is established at the midpoint of the upper shadow of the Inverted Hammer. For confirmation, prices must surpass this level.
The stop-loss level is established as the lower of the last two lows. After a BUY signal, the stop-loss is triggered if prices decline instead of rising and either close below the stop-loss level or record two consecutive daily lows below it, without any bearish pattern being detected.