Inverted Hammer Signal The Inverted Hammer Signal is a single candlestick signal that predicts the change of a bear market into a bull market for a stock, commodity, or currency. This is one of a dozen major signals in the Japanese Candlestick arsenal of technical trading signals. It reminds one of a hammer resting on its head with the handle pointing upward. The trading day can be up which makes the head of the hammer white or down which makes the head of the hammer black. Either is compatible with this being an Inverted Hammer Signal. Use Japanese Candlesticks to Predict the Next Move in the Market Japanese candlesticks have been in use for centuries, first in commodity trading of rice in Japan, and today in trading stocks, commodities, and currencies. These signals work because equity price patterns repeat themselves over time. By reading and understanding a precise pattern a technical trader can profit from the next move of the market. When a stock or other equity has been steadily tending downward and the Inverted Hammer Signal occurs it is often time to exit short positions or buy in order to profit from a rising market. Inverted Hammer Signal The Inverted Hammer Signal has just one candlestick but really has three parts. This unique candlestick has meaning when it occurs in an establish bear market. The candlestick must have an upper shadow that is at least twice as long as the body of the candle and have little or no lower shadow. This means that the equity traded higher than its opening price for most of the day and returned at the end to approximately the opening price. Then the Inverted Hammer Signal requires that the next day trades upward. This subsequent up day confirms the signal. When a trader sees all aspects of the Inverted Hammer Signal he expects to see the emergence of a bull market. The color of the inverted hammer can be black or white and still be an Inverted Hammer Signal. In many ways this signal resembles the Doji signal occasioned by a very flat trading day which often predicts the reversal of the current market. Interpreting the Signal The longer the upper shadow of the Inverted Hammer Signal the stronger the likelihood of a bear market turning into a bull market. Also a gap up on the confirming day makes the likelihood of a subsequent bull market even stronger. What Does It All Mean? Trading can get confusing if you do not have something to hang your hat on. Fundamentals are great for knowing where equities are going in the long term but are often of little help to short term traders. Using time honored Japanese candlestick signals technical traders use a simple approach. This is simple as in clear and precise and not simple as in dumb. Candlestick signals like the Inverted Hammer give traders a clear indication of where the market is going next. Only use the signal when it fits the precise definition, make sure to confirm, and trade to profits.
Posted on: Fri, 11 Jul 2014 08:44:46 +0000