Hammer Candlestick Pattern

If a hammer candlestick pattern occurs after the prices have significantly declined, it strongly indicates a potential bullish trend reversal. For additional confirmation of a bullish trend reversal, wait for the price to cross the high of the Hammer.

The real body of this type of candle is small in size, ideally located at the top, and has a lower shadow that is more than twice the size of the real body. This type of bullish pattern candlestick has little or no upper shadow at all.

When the hammer has formed, a trader can either open a trade and wait for the potential reversal or wait for the future candle to close above the hammer, which is bullish, then enter a trade to capitalize on the reversal.

Inverted Hammer Candlestick Pattern

An inverted hammer candlestick pattern, if it formed after a significant downtrend, is usually taken as a bullish reversal but if this candlestick pattern is formed after a significant uptrend, then it is also called a shooting star. Signals a bearish reversal. Usually, traders wait for the prices to close above the high or low of the pattern to decide the trend.

This candlestick pattern is exactly opposite to the hammer, where this has a long upper wick that is at least twice the size of a small body. This candlestick pattern will have a small or no lower wick. This pattern indicates that the buyers took the prices up but encountered severe selling pressure from sellers, and eventually, the prices came down and closed close to the day's open price.