CDL_INVERTEDHAMMER (Inverted Hammer)¶

Overview¶

The Inverted Hammer is a single-candle bullish reversal pattern with a long upper shadow that forms at the bottom of a downtrend. This pattern is used to identify potential trend changes and provides traders with entry signals when combined with proper confirmation.

Parameters¶

Parameter	Type	Default	Description
`open`	Array	Required	Array of opening prices
`high`	Array	Required	Array of high prices
`low`	Array	Required	Array of low prices
`close`	Array	Required	Array of closing prices

Parameter Details¶

Note: Array elements should be ordered from oldest to newest (chronological order)

OHLC Arrays - All four price arrays must have the same length - Minimum 1 candle required for pattern detection - More historical data provides better context for trend analysis

Usage¶

Basic Usage¶

require 'sqa/tai'

open =  [50.0, 49.5, 48.0, 47.5, 48.5]
high =  [50.5, 50.0, 48.5, 48.0, 49.5]
low =   [49.5, 48.5, 47.5, 47.0, 48.0]
close = [49.5, 48.5, 48.0, 47.5, 49.0]

pattern = SQA::TAI.cdl_invertedhammer(open, high, low, close)

puts "Inverted Hammer signal: #{pattern.last}"
# Output: 100 (pattern detected) or 0 (no pattern)

Understanding the Pattern¶

What It Measures¶

The Inverted Hammer pattern measures: - Reversal Potential: Shift in market sentiment and momentum - Market Psychology: Bears still in control but bulls testing resistance, potential shift - Trend Exhaustion: Signs that current trend is losing strength

Pattern Characteristics¶

Type: Single-candle bullish reversal
Trend Context: Must appear in downtrend
Signal: 100
Reliability: Moderate to High (with confirmation)
Best Timeframes: Daily, 4-hour charts

Trading Signals¶

Entry Signals¶

Primary Entry: Long when next candle closes above inverted hammer

Risk Management: - Stop Loss: Below the low of the inverted hammer - Target: Recent resistance or swing high - Risk/Reward: Aim for minimum 1:2 ratio

Confirmation Requirements¶

Strengthen the signal with: 1. Volume Confirmation: Increased volume on signal candle 2. Trend Confirmation: Clear downtrend established 3. Support/Resistance: Pattern at key price level 4. Next Candle: Following candle confirms direction

Best Practices¶

Optimal Use Cases¶

Market Conditions: After established trend with clear momentum
Timeframes: Most reliable on daily charts
Asset Classes: Stocks, forex, commodities
Volatility: Normal volatility environments

Combining with Other Indicators¶

RSI: Confirm overbought/oversold conditions
MACD: Verify momentum shift
Volume: Validate buying/selling pressure
Moving Averages: Confirm trend context

RSI - Momentum confirmation
MACD - Trend and momentum
Volume OBV - Volume confirmation