FOREX TRADING

There are many candlestick trend reversal and trend continuation patterns. These candlestick patterns can help you confirm a trend reversal or a trend continuation. Inverted Hammer Candlestick Pattern is an important trend reversal pattern that can give accurate signal on trend reversal. However, this pattern occurs rarely but when it does, it means that the trend will reverse itself soon.

The first day is a usual bearish candle in the downtrend. On the second day or what you call the signal day you find the inverted hammer something quite rare as the price action required to produce such a pattern seldom takes place.

An inverted hammer has a very small body at the bottom with a long wick at the top. As the high is way above the body, most of the trading took place near the small area close to the low. This low serves as the support for the upcoming days.

Now, you should wait for the confirmation the following day in order to trade this bullish inverted hammer pattern. If the open of the next day after the appearance of the inverted hammer pattern is higher than the low of the previous day, the inverted hammer pattern is a true pattern and you can trade it by putting the stop at the same level of the open of the day.

In case of the bearish inverted hammer, it is a signal that the uptrend is about to end and a downtrend is going to start soon. The first day, you will find a bullish long white candle like the sort that mostly occurs in an uptrend. Then there is a gap opening and more buying at the start.

But at some time, the bears take hold of the market. The bears start to push the prices lower. The close is equal to or very close to the low of the day. When you spot a bearish inverted hammer, you can sell or go short by placing the stop close to the open of the second or the signal day.

However, as an aggressive trader, you can place the stop at the high of the inverted hammer formed on the second or the signal day. Always follow the rules. Place the stops and wait for the market to move further. If the market moves in the direction anticipated, you can make a nice profit. If not and the candlestick pattern is not confirmed by the subsequent price action, the stop loss order will take you out of action at a very small loss. Sometimes, the price action can retrace itself but stick with the rules, this is what disciplined traders do!

Mr. Ahmad Hassam has done Masters from Harvard University. Master these Candlestick Patterns with this FREE 82 page PDF Candlestick Guide. Read this shocking FREE 40 page PDF FRWC Brutal Truth Report on trading robots that exposes almost everything.

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