"Inverted hammer" appeared on BITCOIN chart what does this mean?

3 Okt 2022

The previous trading week on the chart BTCUSDT closed presumably with a candle: Inverted Hammer
This Japanese candlestick pattern consists of a bearish candle (red), followed by the Inverted Hammer candlestick, which is characterized by a short body, long upper shadow, and almost without lower shadow. Its appearance on the chart completes the downtrend and signals a bullish reversal.

Inverted hammer pattern criteria
For the reliable identification of the inverted hammer, the following criteria should be met on the chart:
- The market should be dominated by a pronounced downtrend, which can be clearly identified on the chart.
- The first candle of the pattern should be a bearish candle with a long body (relative to the average length of the body of the previous candles).
During the next candle forms an inverted hammer candle, which has a relatively short body length, located in the upper part of the trading range. It does not matter whether it will be bullish (green) or bearish (red)
- The upper shadow of the second candle should be at least twice as long as its body.
- Ideally, the lower shadow should be completely absent, but in the practice of analysis, it is acceptable, if its length is insignificant.

Signal confirmation
The inverted hammer bullish reversal pattern should definitely get the final confirmation in the form of:
- a bullish candle with a long body, provided that the trading volume is high;
- price break upwards with the formation of a bullish candle.
That is why, the BTC price should rise at least to $21.5-22k in the current trading week, as we show in the chart

Psychological rationale
The formation of the model occurs against the background of a steady downtrend, and the bearish candle with a long body just confirms the domination of the bears in the market. The next trading candlestick opens at or near the price low. During this trading candle, the bulls take the initiative, which creates a long upper shadow, but when the candle was closed the bears regain the lost positions. Further action by market participants will depend on the final confirmation, which will be received or not received on the next trading candle. If the market gets a clear confirmation of the trend reversal, the bears will begin to close short positions, and the bulls will increase pressure on the market, and the price will naturally accelerate growth.

Buy and Stop Loss levels
The model is considered to be confirmed if the price has crossed the level passing through the middle of the upper shadow of the inverted hammer, in our case the Buy signal will be if the Bitcoin price fixed above $19716

Stop Loss level is defined as passing through the lowest of the last two price lows, i.e. below $18180. Close a long position and fix the loss in the case, if the market has closed and consolidated below this level.
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