Patterns/ One candle

One candle 6 min read

Inverted hammer

A long spike upward with a small body beneath it, appearing after a decline. The shooting star's shape in the opposite place — and, like the hanging man, a pattern whose entire meaning is borrowed from its surroundings.

What the shape is

A small body sitting near the low of the candle's range, with a long upper wick above it and almost nothing below. It appears after a decline. The same shape after an advance is a shooting star and is read the opposite way.

What it records is odd on its face: during the period, buyers pushed price well up, and by the close almost all of that was given back. Read literally, that is a failed attempt. It is treated as potentially bullish anyway, and the reasoning is worth stating plainly rather than taking on faith.

The argument is that in a market that has been falling steadily, the appearance of buyers willing to push price up hard at all is new information — even if they did not hold the gains. Something changed about who was willing to bid.

When it means something

An attempt that was followed upIllustrative
A steady decline, then a session that spiked well above the recent range before closing back near its low. On its own, nothing. What makes it readable is the next few periods: the low is never retested, and price works higher instead.

Notice the honesty problem built into this pattern. The candle itself shows buyers failing. Everything that makes it bullish happens after it. That is true of most patterns to some degree, but here it is unusually stark — which is a good reason to treat the inverted hammer as something to watch rather than something to act on.

The same shape, meaning nothing

An attempt that was simply absorbedIllustrative
Same candle in the same kind of decline, and the fall carried on. Buyers tried, sellers met them, the close came back down. Which is the straightforward reading of the shape, and more often than not the correct one.

Telling them apart

  • Did the next period close above the inverted hammer's high? That is the conventional confirmation, and without it there is nothing here.
  • Did the low hold? The candle's low is the obvious place the claim fails. Trading below it ends the discussion.
  • Was the spike into anything? A reach up to a level that had stopped price before is more interesting than a reach into empty space.
  • Was there volume behind the spike? Real buying leaves a trace in the volume bar. A thin spike is often one order.
Common mistake

Acting on the candle itself. Of the common single-candle patterns this is the one that most needs the following period to confirm it, because the candle on its own records buyers losing. Treating an unconfirmed inverted hammer as a floor is buying into a decline on the evidence of a failed rally.

The honest summary

The weakest of the four single-candle reversal shapes, and the one most dependent on what happens next. Its own content is a failed push upward. Everything bullish about it is supplied by the periods that follow — so if you find yourself acting before those arrive, you are acting on nothing.

Terms used

Inverted hammer
A small body at the low of the range with a long upper wick, after a decline.
Shooting star
The identical shape after an advance, read the opposite way.
Confirmation
A later period doing what the pattern implies, before the pattern is relied on.
Absorption
Buying being met with enough selling that price does not rise.

Patterns are the easy half

Reading the chart underneath them is the part that decides whether any of this is useful. The Charts track works through levels, volume, trend and timeframes from the beginning.

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