An inverted hammer is a single candlestick with a small body near the bottom of its range and a long upper wick (at least twice the body), appearing after a decline. It shows buyers made a first attempt to push price higher. They failed to hold it, but sellers also failed to push to new lows. It's a weaker bullish reversal signal than the hammer and needs confirmation: the next candle should close above the inverted hammer's high, ideally at support.
The inverted hammer looks bearish at first glance: a long upper wick usually means rejection. In context, after a decline, it can be an early sign that selling is running out of steam. The key word is early: it needs confirmation.
Identifying an inverted hammer
- Appears after a decline.
- Small body near the low of the candle.
- Long upper wick, at least 2× the body.
- Little or no lower wick.
What it means
During the period, buyers pushed price up sharply for the first time in the decline. Sellers pushed it back down, but not below the open by much, and not to new lows. It's a sign that buyers are testing and sellers are losing control, not that buyers have won.
Score the Setup Before You Take It
TRADZY's Void Engine rates any setup 0–100 across 12+ variables: structure, trend alignment, volume, momentum and key levels.
Score a Setup Free →Inverted hammer vs related patterns
| Pattern | Shape | Context | Signal |
|---|---|---|---|
| Inverted hammer | Long upper wick, small body at bottom | After a decline | Potential bullish reversal (needs confirmation) |
| Shooting star | Same shape | After an advance | Potential bearish reversal. See shooting star |
| Hammer | Long lower wick, small body at top | After a decline | Stronger bullish reversal. See hammer |
| Gravestone doji | No body, long upper wick | Either | Indecision or rejection |
Trading rules
- Location: at a support level, such as a prior swing low, a key daily level or a rising longer-term moving average. See support and resistance.
- Confirmation: the next candle closes above the inverted hammer's high. Without it, don't trade the pattern.
- Entry: on the confirmation close, or a break above the confirmation candle.
- Stop: below the inverted hammer's low (or the confirmation candle's low if tighter and logical).
- Target: the nearest resistance, or 2R.
- Volume: rising volume on the confirmation candle strengthens the signal.
When it fails
- No confirmation: the next candle makes a new low. The decline continues.
- Strong higher-timeframe downtrend: counter-trend reversals at minor levels fail often.
- No support nearby: there's no reason for buyers to defend that price.
Improving the odds
Look for confluence: the inverted hammer at support, with bullish RSI divergence (price makes a lower low, RSI a higher low), and a reclaim of a short-term moving average on the confirmation candle. Each independent factor adds weight. See RSI explained.
More patterns in bullish candlestick patterns and how to read a candlestick chart.
TRADZY's Void Engine scores candle patterns together with location, trend alignment and volume, so an unconfirmed inverted hammer in a downtrend scores low.
FAQ
Is an inverted hammer bullish?
Potentially, when it appears after a decline and the next candle confirms by closing above its high. On its own it's a weak signal.
What is the difference between an inverted hammer and a shooting star?
The shape is the same. An inverted hammer appears after a decline (potentially bullish), a shooting star after an advance (bearish).
Does the colour of an inverted hammer matter?
A green body is slightly more bullish, but location and confirmation matter far more than colour.
Where do you put a stop on an inverted hammer trade?
Typically below the inverted hammer's low, with a small buffer.
How reliable is the inverted hammer?
Less reliable than the hammer. It works best at support with confirmation and supporting signals like RSI divergence.
Put This Into Practice
- Score your next setup 0–100 with the Void Engine before entering
- Log the trade and tag the setup in the TradLog
- Review weekly: keep what pays, cut what doesn't
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Educational content, not financial advice. Trading involves substantial risk of loss.