Red Inverted Hammer: The Reversal Signal Every Trader Needs to Know

In technical analysis, the inverted red hammer is that pattern that appears right when the market hits bottom after a sustained decline. What makes it special?

Structure is key: small body and red (close below open) + long upper shadow (buyers tried to rise but couldn’t). This screams: “Sellers lost control.”

Why it matters: When you see this VELA at the end of a bearish trend, especially at key support levels, a rebound is likely. If the next VELA is green, you have confirmation of a trend change.

How to trade:

• Don’t rely solely on this pattern. Verify RSI (is in oversold zone?) and support levels.
• Place stop loss below the VELA’s minimum.
• Wait for confirmation from the following VELA before entering.
• Combine with other indicators to increase probability.

Quick differences:

• Traditional hammer: long lower shadow (the opposite)
• Doji: tiny body with equal shadows above and below
• Bearish engulfing: continuation signal, not reversal

Bottom line: It is a powerful tool when it appears in the right context (end of bearish trend + support level + subsequent confirmation). The magic lies in combining it with other indicators, not in this pattern alone.