Inverted Hammer

The Pattern

An Inverted Hammer is a single bar with three shape constraints:

1. The body sits in the lower third of the bar’s range.
2. The upper wick is at least twice the body’s height.
3. The lower wick is short or absent.

The bar must print after a prevailing downtrend. The same shape after an uptrend is a Shooting Star with the opposite bias.

The Story Behind It

The session opened weak, buyers rallied price well above the open, and sellers then absorbed the move and pushed price back near the open by the close. The long upper wick records that attempt to reverse. In the classical reading the bar is not yet a reversal by itself: it shows buyers testing higher for the first time in the decline, and confirmation comes the next session if the close prints above the inverted hammer’s body.

The pattern is sometimes treated as a weaker cousin of the Hammer because the rejection is visible only on the upside test, not on a close back near the high. Many practitioners require a follow-through bar before treating it as actionable.

When It Tends To Work

• After a sustained downtrend, ideally one where buying interest has been visibly absent for several sessions.
• When the upper wick reaches into a price area that has recently acted as resistance. The test of that level is the news, not the close.
• When the next session opens above the inverted hammer’s close and holds. The follow-through bar is what classical analysts wait for.

When It Tends To Fail

• When traded without the follow-through confirmation. Acting on the inverted hammer alone has historically been low-edge in equity index futures.
• In strong, persistent downtrends. The same shape can print repeatedly during a steady decline and most will fail.
• On bars where the upper wick is the result of a single news-driven spike rather than sustained buying.

How This Strategy Trades It

Enter long at the close of the inverted hammer bar. Hold for hold_bars sessions (default 5), then flatten unconditionally. This strategy takes the entry on the pattern bar itself, not on a confirmed follow-through bar. That trades signal frequency for cleanliness, and the backtest will reflect that trade-off honestly.

Related Patterns

• Hammer: same trend context, opposite wick direction. The classical stronger version of this setup.
• Shooting Star: same shape, bearish context.
• Bullish Engulfing: a different reversal idea entirely, two-bar momentum flip rather than a single-bar test.

Try It Yourself

The default preset uses 1-contract sizing on NQ daily bars. The form lets you change the contract, timeframe, hold length, and contract count.