In financial markets, learning to identify potential market reversal opportunities will help investors achieve better trading results.

This article will introduce a bullish reversal candlestick pattern: inverted hammer line.

What is Inverted Hammer Line?

The inverted hammer line pattern consists of a single candlestick pattern, which usually appears in a downtrend, implying that the market may reverse from bearish to bullish.

The entity of the inverted hammer line is very small, the upper shadow is very long, the lower shadow line is very short or even not. In general, the length of the shadow of the inverted hammer line is at least twice the physical length.

As the name suggests, the inverted hammer line looks like an inverted hammer on the K-line chart.

How are the inverted hammer lines formed?

At the bottom of the downtrend, the market overrun weakened, bulls gradually enter, this time may appear inverted hammer line form.

The long upper shadow of the inverted hammer line showed that the longs once significantly pushed the price up, but failed to hold on to the day's outcome.

The good thing is that the long effort is not meaningless, they block further decline in prices, making the closing price very close close, resulting in a physically small candlestick, suggesting that the short sell-off may be nearing the end.

If the K-line on the next trading day falls above the inverted hammer entity, the bullish signal is expected to be confirmed and the market may rise from a fall.

How to identify inverted hammer lines?

Inverted hammer line is not difficult to identify, in combat, we can focus on the following points.

● Downtrend

The inverted hammer line usually appears after a downtrend. A downtrend means that the price continues to fall for a period of time.

● Long Shadow

The inverted hammer line with a long upper shadow line indicates that the longs once significantly pushed the price up, but most of it fell back in the day. Generally speaking, the length of the upper shadow line should be more than twice the solid, at the same time, the inverted hammer line generally does not have a lower shadow line, or very short shadow line.

● Small Solids

Inverted hammer line entity relative to the long shadow, it is relatively small, that is, the closing price compared to the opening price does not change much. On the other hand, the color of the entity can be green or red, that is, the inverted hammer line can be both positive and yin.

● Form confirmation

If the price falls above the entity of the inverted hammer line on the next trading day, the bullish signal is expected to be confirmed. However, once the price falls below the bottom of the hammer line, the pattern will declare a failure.

case analysis

Below, we take an example of the inverted hammer line that appeared in the Meta Markets (META) stock price at the end of 2018.

From the end of July 2018, Meta platforms is on a downward trend.

On the day the inverted hammer line appeared, the stock opened low at $123.10, which could indicate a continuation of the previous day's overthrow.

Subsequently, the long gradually entered the entrance, once pushed the stock price to an intra-day high of $129.74.

However, stock prices retreated high, as of closing, most of the day gains were erased, closing just slightly above the opening price, forming an inverted hammer line with a long upper shadow and small entities.

On the next trading day, the share price climbed significantly and closed much higher than the inverted hammer line for entities. After that, the market reversed to an uptrend.

summed

Overall, the inverted hammer line is a bullish reversal candlestick pattern that usually appears in a downtrend.

This pattern helps investors determine potential buying opportunities. However, trading with inverted hammer lines does not always work.

In combat, investors should combine with other technical analysis tools to better support investment decisions using the inverted hammer line.