Inverted Hammer Candlestick Pattern: Spotting Reversals When the Market Fakes You Out
When the market looks like it’s about to keep falling but suddenly throws a curveball—that’s often when the inverted hammer candlestick pattern shows up. It’s a bit of a trickster at first glance, but if you understand what it means and where it appears, it can be a helpful clue that buyers might be waking up.
In this guide, you’ll learn how to identify the Inverted Hammer, what it suggests, where it tends to form, and how traders use it to prepare for potential trend shifts.
What the Inverted Hammer Looks Like
Recognizing its upside-down structure
The inverted hammer is easy to spot once you know what to look for. It has a small body near the bottom of the candle and a long upper wick, typically at least twice the length of the body.
There’s little to no lower shadow.
Why does this matter? Because the long upper wick shows that buyers tried to push the price higher—but didn’t completely succeed. Still, their effort is significant—especially after a downtrend—because it shows that buyers are starting to fight back.
Not to be confused with the Shooting Star (which we’ll cover separately), the Inverted Hammer forms at the bottom of a trend, not the top.
What the Inverted Hammer Signals
Why traders watch for it after a drop
The inverted hammer candlestick pattern is often seen as a potential bullish reversal signal. It tells us that buyers attempted to reverse the trend—and while they didn’t fully take over just yet, their presence is being felt.
This makes the pattern most meaningful when it shows up after a clear downtrend or at a strong support level. It’s not a green light on its own, but it’s definitely a yellow one with flashing arrows.
Because of its indecisive close, traders usually wait for confirmation from the next candle before acting.
When the Inverted Hammer Becomes Useful
Where it fits into the chart
The power of the inverted hammer comes from context. If it appears randomly in the middle of a trendless range, it doesn’t tell you much. But when it shows up after strong bearish momentum, it can suggest that sellers are losing control.
Here’s a quick breakdown:
As always, one candle doesn’t define the market. But in the right spot, the Inverted Hammer gives you a reason to pay closer attention.
How Traders Use the Inverted Hammer
Building a setup with confirmation
Spotting the pattern is step one. Acting on it wisely is where trading skill comes in.
Here’s how most traders approach the inverted hammer candlestick pattern:
- First, they look for the pattern after a clear downtrend.
- Then, they wait to see if the next candle closes above the high of the Inverted Hammer.
- Finally, they add extra confirmation—maybe the RSI shows oversold conditions or a support zone is holding.
Let’s lay that out in a table:
Example: Inverted Hammer in Action
Imagine AUD/USD has been dropping for days. Then, on the daily chart, you see an inverted hammer candlestick pattern form just above a major support zone.
The next candle opens slightly higher and closes well above the high of the Inverted Hammer. That’s confirmation.
Many traders would treat this as a potential long setup—entering above the high, placing a stop below the low, and watching for a short-term rally.
The inverted hammer candlestick pattern is a small sign of a possible big change. It’s not always right, but when it shows up after a heavy sell-off, it can signal that buyers are quietly stepping back in.
As always, the magic happens when you combine it with other tools and wait for that extra confirmation candle. Next up, we’ll look at a very similar shape—but with a much darker meaning: the Hanging Man.