Inverted Hammer Candlestick on Live Gold

What it shows

Each inverted hammer gets a blue label marked IH under the candle’s low.

How Pravex works it out

1. The inverted hammer rule never uses a fixed size: a body, open to close, is long when it beats the 14-candle exponential average of bodies and small when it falls short of it.
2. The shape is one candle with a small body (below the average) that is not a doji. The inverted hammer rule calls a candle a doji when its body is no more than 5% of its high-to-low range.
3. The upper shadow, from the top of the body to the high, must be at least 2 times the body. The lower shadow may be no more than 10% of the candle’s range. Either body colour counts.
4. A downtrend is required for the inverted hammer, measured on the inverted hammer candle itself, and with the default it comes down to one comparison: is that close below the average of the last 50 closes?
5. Example numbers, not a live price: high 2,020, low 2,000, open 2,001, close 2,003. The body is 2, the upper shadow 17 (more than 8 times the body) and the lower shadow 1, which is 5% of the 20-point range. The shape passes.

Settings

Setting	Default	What changing it does
Trend check	SMA50	SMA50, the default, looks for a close below the 50-candle average on the inverted hammer candle. Add SMA200 and the 50-candle average must also be below the 200-candle one, a stricter test that drops many inverted hammer labels. With the check off, every inverted hammer shape is marked, whatever the trend.
Label colour	Blue (#2196F3)	The fill of the IH label under the low of each candle where the inverted hammer pattern is complete; its white text needs a colour it reads well on.

How traders read it

The long upper shadow is the first sign of buyers after the fall. They failed to hold the high this time, so the inverted hammer needs more proof than a regular hammer. The usual check is the next candle: a gap or a close above the inverted hammer’s body is the start of a case, and a close above its high is a stronger one.

A stop under the inverted hammer’s low is the common choice, because a fresh low means the fall resumed. On spot gold the low of these candles is often close to the body, so the risk can be tight, while the target sits far away at the top of the shadow and beyond.

When it misleads

The same shape appears inside falls all the time: a bounce gets sold and the market keeps going. Our trend test only asks for a close under the 50-candle average, so a small dip in a rising market qualifies too. With a tiny range the shadow proportions are easy to meet and the candle means little. A inverted hammer label on the newest candle is provisional: that candle has not closed, and the shape may stop holding before it does.

Questions and answers

Is an inverted hammer bullish?

It is read as a possible bottom after a fall, so it counts as bullish. It is a weaker sign than a hammer, because the buyers lost most of their gain before the close.

What is the difference between an inverted hammer and a shooting star?

They have the same shape. After a fall Pravex calls it an inverted hammer (bullish); after a rise it is a shooting star (bearish).

How do you confirm an inverted hammer?

Look at the next candle. A close above the inverted hammer’s body, and better above its high, confirms it. A close under its low cancels it.

Can the body of an inverted hammer be red?

Yes. Our rules accept a rising or a falling body, as long as it is small, sits near the low and the upper shadow is at least twice its size.

Related: Hammer - Bullish, Shooting Star - Bearish, Gravestone Doji - Bearish, All Candlestick Patterns, every indicator.