A Candle Pattern Inverted Hammer

[aparsai]

The Invert Hammer is a single candlestick pattern that rarely appears on Forex charts. Visit Free Forex MQL Training - Candlestick Lesson 14: Inverted Hammer Bullish Reversal for more information about this pattern and download a custom indicator that locates it in a MetaTrader 4 chart.

Your comments are welcome.

 

[TheBramble]

aparsai, you say comments are welcome. I hope you mean that.

While you may be forgiven for thinking I’m following you around with an argumentative point of view, I do think you need to be more open in your qualification for these types of formations. There are as many ‘inverted hammers’ that are bullish reversals, in retrospect, as there are those that lead to continuations of existing bear, and bull trends.

We suffer from lack of reliable volume data in FX which is more of an issue than the incidence of this type of candle.

The only difference between an inverted hammer and a shooting star is that the former ‘comes after a decline’ (according to Nison) which is a rather retrospective analysis, don’t you think. You can only really qualify it as an inverted hammer after subsequent price action has confirmed it as such. Otherwise it’s a shooting star. Or something else…

It’s not just your posts. There was another poster today extolling the virtues of the price ‘bouncing off’ Bollies. Obviously quite oblivious to the fact that the price makes the Bollies, it doesn’t ‘react’ to them. And when we hear bods describing how the price ‘bounces off’ the MA – of that price. LOL. The MAs ARE the price. All indicators are derived from price. Of course they will ‘interact’ with the price – they are a derivative of it – from it –after it.

Candles no less fall into the fascinating area of imagining they ‘mean’s something more than the price itself. They merely capture, as do OHLC bars, the price at one instant in time for a specific level of granularity of time. Nothing more. To read more than that into them is madness.

 

[aparsai]

aparsai, you say comments are welcome. I hope you mean that.

While you may be forgiven for thinking I’m following you around with an argumentative point of view, I do think you need to be more open in your qualification for these types of formations. There are as many ‘inverted hammers’ that are bullish reversals, in retrospect, as there are those that lead to continuations of existing bear, and bull trends.

We suffer from lack of reliable volume data in FX which is more of an issue than the incidence of this type of candle.

The only difference between an inverted hammer and a shooting star is that the former ‘comes after a decline’ (according to Nison) which is a rather retrospective analysis, don’t you think. You can only really qualify it as an inverted hammer after subsequent price action has confirmed it as such. Otherwise it’s a shooting star. Or something else…

It’s not just your posts. There was another poster today extolling the virtues of the price ‘bouncing off’ Bollies. Obviously quite oblivious to the fact that the price makes the Bollies, it doesn’t ‘react’ to them. And when we hear bods describing how the price ‘bounces off’ the MA – of that price. LOL. The MAs ARE the price. All indicators are derived from price. Of course they will ‘interact’ with the price – they are a derivative of it – from it –after it.

Candles no less fall into the fascinating area of imagining they ‘mean’s something more than the price itself. They merely capture, as do OHLC bars, the price at one instant in time for a specific level of granularity of time. Nothing more. To read more than that into them is madness.

I do certainly appreciate your feedback and I definitely meant your feedback are welcome. With good responses like yours is that I improve myself and deliver a better service to my readers.

Just as a note, Shooting Star is more like an inverted Hanging Man rather than an Inverted Hammer (see Free Forex MQL Training - Candlestick Lesson 12: Shooting Star a Bearish Reversal Pattern for more information). Although the Inverted Hammer looks like a star formation, it is not an actual one.

I have also mentioned in my article and according to my research you can hardly find this pattern in a Forex chart and it is not a reliable one. I like Hanging Man, Hammer, Engulfing, and Harami a lot better than this one.

As you mentioned and I agree the lack of volume in Forex makes it necessary to confirm candle patterns with other tools.

Thanks again

 

[TheBramble]

Just as a note, Shooting Star is more like an inverted Hanging Man rather than an Inverted Hammer

You may be right. I was just quoting Nison.

WTF would he know? LOL.

 

[aparsai]

You may be right. I was just quoting Nison.

WTF would he know? LOL.

You made me refer to Nison's book "Japanese Candlestick Charting Techniques". This is what he says on page 74 about Shooting Star:

"Since the shooting star is a bearish reversal signal..."

and then he says on page 77:

"...while shooting star is a top reversal line, the inverted hammer is a bottom reversal line."

If we try to compare the shooting star and inverted hammer together such resemblance looks like the resemblance between the dark cloud formation and the piercing pattern.

So in one sense they are very similar but in two different directions one is bearish and the other one is bullish.

I should admit that Nison in this sense finds many similarities between them.

 

[c_c405]

So do all these candles help you actually catch pips? Do patterns add to your trading account? If you bought a shooting star from a bear hanging in a tree would you magically see profit appear before your eyes?

Price is the pattern and it matters not what the price is right now it only matters what it will be next week!

 

[TheBramble]

and then he says on page 77:

"...while shooting star is a top reversal line, the inverted hammer is a bottom reversal line."

The sentence before that reads "The only difference between the shooting star and the inverted hammer is that the inverted hammer comes after a decline". {my emphasis}.

I'm sure I'm labouring the point, but if the price continues heading down after an inverted hammer, it's still an inverted hammer, but it isn't a Bullish reversal signal. You have to wait until after the candle that has apparently given the ‘signal’ has passed into history before you can decide how you're going to interpret it if you're going to use candle-lore.

I'm not singling out candles for this illusion - bars have the same construct and the same possibilities of interpretation, obviously, and suffer from the same need to allow lag before establishing possible intent.

My earlier post comment regarding volume was intended to underline the even further limited usefulness traditional chart formations analysis has in application to the FX market.

 

[blancspa]

Can one successfully use candles method on 5 min timeframe?
Is it feasible to use them below 1 hr timeframe?

thanks

 

[aparsai]

The sentence before that reads "The only difference between the shooting star and the inverted hammer is that the inverted hammer comes after a decline". {my emphasis}.

I'm sure I'm labouring the point, but if the price continues heading down after an inverted hammer, it's still an inverted hammer, but it isn't a Bullish reversal signal. You have to wait until after the candle that has apparently given the ‘signal’ has passed into history before you can decide how you're going to interpret it if you're going to use candle-lore.

I'm not singling out candles for this illusion - bars have the same construct and the same possibilities of interpretation, obviously, and suffer from the same need to allow lag before establishing possible intent.

My earlier post comment regarding volume was intended to underline the even further limited usefulness traditional chart formations analysis has in application to the FX market.

I agree with you and I have already emphasized that in my article that Inverted hammer is not a very reliable pattern. I have also rarely encountered this pattern in a forex chart. So in my humble opinion this pattern - unlike Hammer - is not a very important one. On the other hand as you mentioned it could appear as a reversal or continuation pattern which makes it both rare and vague.

I also owe you an apology as I was just looking for something in his words that supports mine. I didn't notice a few words prior to the words I was looking for.

 

[aparsai]

So do all these candles help you actually catch pips? Do patterns add to your trading account? If you bought a shooting star from a bear hanging in a tree would you magically see profit appear before your eyes?

Price is the pattern and it matters not what the price is right now it only matters what it will be next week!

Technical Analysis is an attempt to recognize reliable patterns and suggest trade directions. Candlestick Patterns are another set of tools in your TA toolbox. They are not there to change your world but I personally have found them very useful. They could help you catch pips. How? It takes hard work. Since they belong to a world that not many traders walk into they sometimes tend to be more profitable than other methods.

 

[aparsai]

Can one successfully use candles method on 5 min timeframe?

thanks

I'd rather timeframes not less than 1 Hour but you could find somebody who use lower timeframes as well.