An inverted hammer is a single candlestick bullish reversal pattern. The pattern appears after a sustained down-trend.
At the beginning of the day there should be a gap-down opening. However, bulls should push the price higher during the course of the day.
Eventually the bears should push the price lower during the course of the day and close near the open price.
The resulting candle should have a small body, red or green, the upper wick should be at least twice the body of the candle and the lower shadow should be quite small or negligible in size.
If the body is green it is relatively bullish than if it is red. This looks like an inverted hammer as the name suggests.
The philosophy is that bears were not able to push the price below the opening price during the course of the day.
This pattern, however, is considered to be little less bullish than the hammer itself, because in hammer bulls are able to force a higher close by the end of the day.
The confirmation of the pattern comes once the price moves above the high of the candle.
On confirmation a buy trade can be initiated with a stop loss below the low of the candle.
Inverted hammer occurs little less frequently in market as compared to hammer pattern.
