In the share market, identifying patterns is crucial, especially for investors who want to maximize their returns with minimum risks. One effective pattern is the Inverted Hammer Pattern, which often acts as a bullish reversal signal.
Knowing what it represents and how to utilize this pattern will prove advantageous to anyone involved in trading. This 'Inverted Hammer Pattern What It Means How to Use It' covers everything you need to know.
The Inverted Hammer pattern is a type of candlestick pattern formation used in technical analysis. It usually appears at the bottom of a downtrend and indicates a probable reversal in the direction of the price.
The visual appearance is a small body with a long upper shadow but with little or no lower shadow. The candlestick body can also be green, bullish, red, and bearish, but the most prominent feature is the long upper wick. This shows buyers tried to push higher prices, but the sellers resisted.
Knowing when and how to use this pattern will give traders a leading edge. This pattern will be integrated into the trading strategy in the following manner:
Investors and traders must ensure that the Inverted Hammer is seen after a recognizable downtrend. The longer the downtrend, the more reliable this pattern will be as a reversal signal.
Once the Inverted Hammer Pattern has been established, wait for confirmation on the next trading day. If the price opens higher or continues to rise, then this is considered a confirmation of the pattern’s signal that a reversal is likely to occur. You now have more reason to go long.
Volume is another aspect that plays a critical role in the Inverted Hammer Pattern. If the Inverted Hammer forms with high trading volume, it adds much weight to the possibility of a bullish reversal.
The Inverted Hammer, much like any pattern in trading, is not perfect. A good place for a stop-loss order would just be below the low of the hammer, and this will help you limit your risks should things go south.
While learning technical analysis and patterns, it’s also essential to understand the costs involved in trading. One such cost is DP charges. DP charges, or Depository Participant charges, are fees levied by the broker for holding your shares in a Demat account.
These charges are applicable whenever you sell shares, and it’s essential to account for them when calculating your profit or loss.
Here are some quick share market tips for beginners you can follow to reduce risks:
The Inverted Hammer pattern is a trader’s most powerful tool to trace a potential bullish reversal. This 'Inverted Hammer Pattern What It Means How to Use It' guide will help you improve your strategy by making better decisions. Combine this pattern with other indicators to enhance your trading strategies.
Disclaimer: This blog is posted solely for educational purposes. The securities mentioned are examples and not recommendations. It is based on various secondary sources from the internet and is subject to change. Please consult an expert before making any related decisions.
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