As the name says, the Inverted Hammer Candlestick Pattern Forex Trading Strategy is based on the inverted hammer pattern.

Now, if you don’t know what a forex inverted hammer pattern looks like, don’t stress out, as I will explain here.

Inverted Hammer Candlestick Pattern

The inverted hammer candlestick pattern is a bullish chart reversal. This one-candlestick pattern looks like a shooting star candlestick pattern, but. In contrast, the shooting star candlestick pattern appears in an uptrend; the inverted hammer candlestick pattern forms in a downtrend.

Bullish Or Bearish?

  • The inverted hammer pattern itself is bullish,
  • But the candlesticks that classify as an inverted hammer can be both bullish or bearish candlestick patterns, as you can see below. inverted-hammer-candlestick-pattern

What Causes Inverted Hammer Pattern To Form?

In an inverted hammer pattern:

  • The buyers overcame the sellers and pushed the price higher during that time.
  • However, the chart price retraces and closes near the candle opening price.
  • The buyers push high, and subsequent retracement by sellers is reflected by the very long upper wick or shadow.
  • The fact that the price closes near the opening gives a very short body chart candlestick.

Inverted Hammer Pattern Forex Trading Strategy Buy Trading Rules

Since this is a bullish chart candlestick pattern, it only has buying rules.

Here are the rules:

  1. identify on your charts the possible chart price reversal points like support levels or resistance-turned-support levels, Fibonacci retracement levels, rising trendlines, etc
  2. When you see an inverted hammer chart pattern form, place a pending buy stop order 1-2 pips above the high of the invert hammer candlestick.
  3. Place your stop loss anywhere from 2-9 pips below the low of the inverted hammer candlestick pattern.
  4. For take profit target(TP), look for the nearest swing high and see if the risk: reward is quite good, like 1:3 or more and use them as your take profit(TP) target level. inverted-hammer-candlestick-pattern-forex-trading-strategy

Advantages Of Inverted Hammer Pattern Forex Trading Strategy

  • Sometimes, you can pick the bottoms of the market accurately and ride out the upward trend for maximum profits when the pattern works out as anticipated.
  • Reasonable risk: reward ratio
  • If the daily chart is used, it can be a set and forget type of trading system.

Disadvantages Of Inverted Hammer Pattern Forex Trading Strategy

  • As with any forex trading system, this also will have periods where the strategy signals will not work out as anticipated.
  • There’s always the chance to think that the inverted hammer chart candlestick may be a shooting star, and traders miss the obvious by the signal being presented right in front of their face.

Read More: Piercing Line Pattern Forex Trading Strategy