Short answer
What is an inverted hammer candlestick?
An inverted hammer is a single candle with a small body near the bottom of its range and an upper wick at least twice as long as the body, formed after a fall. It shows buyers pushed price well above the open but could not hold the gain by the close. It is a weak bullish sign that needs a strong green confirmation candle, ideally at a demand zone.
Key takeaways
- An inverted hammer has a small body near its low, an upper wick at least twice the body and little or no lower wick.
- It must form after a fall; the same shape after a rise is a shooting star.
- It is weaker than a hammer, because the close is still near the low: buyers tried but did not finish strong.
- Confirmation is essential: the next candle should close above the inverted hammer's high, or at least well above its body.
- The stop loss goes below the inverted hammer's low or the demand zone's distal line, whichever is lower.
- By the 50% rule it is a base candle, so at a demand zone it can be part of the base that the next strong green candle leaves.
What is an inverted hammer?
During the period, buyers lift price well above the open for the first time in a while, then sellers push it back down to close near the low. On its own that looks like failure. After a long fall, though, it is often the first session in which buyers tried to take control, and the next candle shows whether they return with more strength.
- Small body in the lower third of the range; it can be green or red.
- Upper wick at least twice the length of the body.
- Little or no lower wick.
- After a fall: without a decline before it, it is not an inverted hammer.
What is the difference between an inverted hammer and a shooting star?
They are the same shape in different places. After a fall, the long upper wick is an inverted hammer: buyers testing higher prices. After a rise, the long upper wick is a shooting star: buyers being rejected near a high. The first leans bullish and the second bearish, and both need confirmation.
Hammer — after a fall
Hanging man — after a rise
Inverted hammer — after a fall
Shooting star — after a rise
The same two shapes get different names by location: a long lower wick is a hammer after a fall and a hanging man after a rise; a long upper wick is an inverted hammer after a fall and a shooting star after a rise.
How do you confirm an inverted hammer?
Because the inverted hammer itself closes near its low, it needs a stronger confirmation than a hammer. The cleanest confirmation is a green candle that closes above the inverted hammer's high. A green candle that only closes above its body is a weaker sign that buyers have returned.
- Strong confirmation: the next candle closes above the inverted hammer's high.
- Location: it forms at a fresh demand zone, ideally inside a higher-timeframe zone.
- Leg out: the confirmation candle is an exciting candle, with a body of more than half its range.
- No confirmation: if the next candle closes below the inverted hammer's low, the setup has failed.
How do you trade an inverted hammer?
- Confirm the fall and the location at a fresh demand zone.
- Let the inverted hammer close, then wait for the next candle.
- Enter only after a candle closes above the inverted hammer's high.
- Place the stop loss below the inverted hammer's low or the zone's distal line, whichever is lower.
- Check that a 1:2 target fits before the next supply zone, then size the position.
What are common mistakes with the inverted hammer?
- Treating it like a hammer: it is weaker and needs a stronger confirmation.
- Calling it an inverted hammer after a rise: that is a shooting star.
- Entering on the inverted hammer itself: its close near the low is not yet a buy signal.
- Ignoring the zone: far from demand, a failed push higher is just a failed push higher.
Frequently asked questions
Is an inverted hammer bullish or bearish?
After a fall it is a weak bullish sign: buyers tried to push higher for the first time. It becomes useful only when the next candle closes above its high. The same shape after a rise is a shooting star, which is bearish.
Is an inverted hammer stronger than a hammer?
No. A hammer closes near its high after rejecting lower prices, which shows buyers finished the session in control. An inverted hammer closes near its low, so buyers tried but did not finish strong. That is why it needs a stronger confirmation candle.
Does the colour of an inverted hammer matter?
Slightly. A green inverted hammer closed above its open, so it is a little stronger than a red one. Confirmation by the next candle and the location at a demand zone matter far more than the colour.
Where is the stop loss for an inverted hammer trade?
Just below the inverted hammer's low, or below the demand zone's distal line if that is lower. A close back below the low means sellers have pushed through the area the pattern was supposed to defend.
Put this into practice
Work out the numbers before the market moves, then let an alert bring you back to your own plan.
Educational content only. Nothing here is investment advice or a recommendation to buy or sell any security. Chart diagrams use illustrative prices, not market data. Trading involves risk of loss; verify prices independently and apply your own risk process.