Business, Legal & Accounting Glossary
The bullish Inverted Hammer candlestick is a one-day bullish reversal pattern. In a downtrend, the open is lower, then it trades higher, but closes near its open, therefore looking like an inverted lollipop.
Note that in an uptrend, the same pattern is called a Shooting Star.
In a market characterized by a downtrend, bulls are able to rally price up briefly, but not enough to close above the days open. This can be a warning for shorts to anticipate a further, more sustainable bullish rally. The reversal trend is confirmed by bullish moves the next day. The day after the Inverted Hammer occurs, the higher the candle holds above the previous body, the more likely the shorts will cover their positions, leading to the weakening of a bearish market. Many buyers will enter the market once that occurs, leading to a bullish reversal. Confirmation is highly recommended for the Inverted Hammer.
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This glossary post was last updated: 22nd March, 2020 | 3 Views.