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There are two factors that also help in differentiating both patterns. The stocks I’m watching in November aren’t outliers … The market has been in recovery mode since mid-October…. You’ll likely see a total reversal in momentum, with the second candle erasing gains. Then the second is a small-bodied candle that extends above the first and has two long wicks. Expert market commentary delivered right to your inbox, for free. Inverted Hammer occurring along with a spinning top or even multiple hammers together also increases the chance of Inverted Hammer to work.

evening star pattern

Patterns can form with one or more candlesticks; most require bullish confirmation. The actual reversal indicates that buyers overcame prior selling pressure, but it remains unclear whether new buyers will bid prices higher. Without confirmation, these patterns would be considered neutral and merely indicate a potential support level at best. Bullish confirmation means further upside follow through and can come as a gap up, long white candlestick or high volume advance.

Notice how the candle meets all of the three requirements that validates its pattern. The lower shadow within the hammer formation is at least two thirds the length of the entire candle. The body of the candle is relatively small and is situated in the upper third of the candle’s range. And the upper shadow is nonexistent, or minimal compared to the size of the lower shadow. With these three requirements met, we can confirm that the candle that we are analyzing is a valid hammer formation. Additionally, the body of the hammer candlestick will appear towards the upper range of the formation and represent approximately one third or less of the entire formation.

  • As we shall see, these two candlestick patterns are completely different in their interpretations.
  • And as with many trading patterns, a reversal hammer can be used as trigger across various time frames.
  • The stop loss for this trade would be set at a level just below the low of the hammer formation.
  • Here are the key takeaways you need to consider when using the inverted hammer candlestick pattern.

The White Marubozu candle is a healthy bullish candlestick with no upper or lower wicks. This candle represents increasing buying pressure in the market, and bears are getting weaker, so they can’t even be able to let the price low anymore. The first is a bearish candle, and the 2nd is a bullish candle that opens a gap down but closes at the level of the previous bearish candle. As the above chart image shows, the ongoing trend was a downtrend; at the bottom of the downtrend, a hammer candlestick appears, and then the trend changes from down to up. In other words, a hammer candlestick or a pattern derived from it appears. The hanging man candlestick pattern is the opposite of an inverted hammer.

And when you learn to spot them on charts, they can signal a potential change in trend direction … This is when momentum begins to shift. The inverted hammer is a reversal pattern at the end of a downtrend. The pattern signals that bears are losing their grip on the market, and bulls are starting to take control.

The Inverted Hammer candlestick is one which has small real body and a long upper shadow or wick. Inverted Hammer candle generally has a small but nonzero real body . It has an upper shadow or wick which is two to three times the size of the real body and it has no or very small lower shadow. The Hammer candlestick is one which has small real body and a long bottom shadow or wick. Hammer candle generally has a small but nonzero real body . It has a lower shadow or wick which is two to three times the size of the real body and it has no or very small upper shadow.

Therefore, this article aims to analyze essential candlestick patterns and their use. That’s because they can help traders in the know spot a change in a stock’s direction before it happens. This means that you may be placing your stop loss too early or too late, which can lead to unnecessary losses or missed opportunities. The black candlestick confirms that the decline remains in force and selling dominates. When the second candlestick gaps down, it provides further evidence of selling pressure. However, the decline ceases or slows significantly after the gap and a small candlestick forms.

Five Things to Look for in a Reversal Hammer

Candlestick patterns have very vivid, descriptive names. Their names are useful in helping us to understand what types of patterns they are and where in the chart we are likely to find them. In this case the hanging man is as ominous as it sounds.


The hammer candlestick pattern is frequently observed in the forex market and provides important insight into trend reversals. It’s crucial that traders understand that there is more to the hammer candle than simply spotting it on a chart. Price action and the location of the hammer candle, when viewed within the existing trend, are both crucial validating factors for this candle.

How do you trade the inverted hammer pattern?

The patterns below don’t need to appear precisely on stock or forex charts. Candlestick patterns are one of the most effective tools used by technical analysts to plan their trades in the market. Technical analysts use these patterns to determine their trading actions. Like it was the case in the inverted hammer, the hanging man is difficult to trade with an aggressive setup. When a setup appears, Monday’s opening is the perfect place to place pending orders.

The stock declined below its 20-day EMA and found support from its earlier gap up. This also marked a 2/3 correction of the prior advance. A bullish engulfing pattern formed and was confirmed the next day with a strong follow-up advance. Hammer candles can appear as either red or green candles, with the most qualifying factor being the ratio of the shadow to the body of the candle.

The following example of how to the hammer candlestick highlights the hammer candle on the weekly EUR/USD chart. The pattern indicates that the price dropped to new lows, but subsequent buying pressure forced the price to close higher, hinting at a potential reversal. The extended lower wick is indicative of the rejection of lower prices.

The difference between an inverted hammer and a hammer is this is just an upside-down version of a hammer. If the hammer’s body color was white, it would also qualify as a bullish harami since the hammer snuggles inside the body of the prior candle. If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. My book,Encyclopedia of Candlestick Charts, pictured on the left, takes an in-depth look at candlesticks, including performance statistics. When traded properly, hammer candles have such results.

hanging man candle

In the picture you can see the basics of a candlestick made up of a high, low, close, and open. StocksToTrade in no way warrants the solvency, financial condition, or investment advisability ofany of the securities mentioned in communications or websites. In addition,StocksToTrade accepts no liability whatsoever for any direct or consequential loss arising from any useof this information. In the current market, it’s more difficult to find great stocks to trade and execute your plan… Stocks are… In the markets, volatility changes fast, and patterns may not play out the way you might expect them to. So with this pattern, you can expect to see buying pressure continue.

It’s vital the downtrend is strong and lasts for a long time. If the hammer pattern appears after several candlesticks moving down, the risk of a false signal increases. The hammer allows traders to understand where supply and demand are placed.

Bullish candlestick reversal patterns are formations that occur on a candlestick chart indicating a potential change in the market direction from bearish to bullish. The bearish engulfing is the opposite of the bullish engulfing pattern. This time, it’s the bearish candle that engulfs the smaller body of the preceding bullish one. The three black crows is a bearish reversal pattern formed by three consecutive candlesticks with lower closes.

The upper wick should be relatively small or nonexistent within this entire structure. A spinning top is a candlestick pattern with a short real body that’s vertically centered between long upper and lower shadows. With neither buyers or sellers able to gain the upper hand, a spinning top shows indecision.

Shooting Star

This pattern shows a situation in which the price of an asset tries to push to a new, higher position but ultimately fails and closes below its opening. Upon seeing such a pattern, consider initiating a short trade near the close of the down day following the hanging man. A more aggressive strategy is to take a trade near the closing price of the hanging man or near the open of the next candle. Place a stop-loss order above the high of the hanging man candle. The following chart shows the possible entries, as well as the stop-loss location. The second trading technique to combine with the inverted hammer pattern is Fibonacci retracement levels.

Of course, the risk should be adjusted with the time frame. If the risk-reward ratio makes sense, traders end up on the right side of the market. Such an approach bodes well with any money management system.

push the price

You may consider going down to the 480 or 240 minute, but keep in mind that the best and highest probability signals will occur on the higher time frames noted. Additionally, it can be applied to any currency pair or financial instrument, so long as it is fairly liquid. Short Line Candles – also known as ‘short candles’ – are candles on a candlestick chart that have a short real body. On its own, the hammer signal provides little guidance as to where you should set your take-profit order.

It’s not possible to see a hammer candlestick in uptrend markets. The only way to have the same reversal pattern is when the market forms a hanging man candlestick. When you see bullish reversal patterns, you will like to place the stop loss below the entire candle pattern .

A bullish harami cross looks a lot like a bullish harami pattern. The difference is that the second “baby” candle forms as a doji. And the doji candle forms within the middle half of the first candle’s body.