Red Inverted Hammer: The Signal Traders Use to Catch Reversals

Do you see a red candle with a VERY long upper shadow after a sharp drop? That is an inverted hammer, and here’s why it matters.

Why it works

This candle appears when:

• Sellers push the price to close red
• BUT buyers attempted to lift the price (that long shadow)
• The lower shadow is small or almost nonexistent

Translation: Sellers are losing momentum. Buyers are coming back. Possible rebound incoming.

How to trade it without losing money

1. Location matters
Look for it after LONG drops, not in the middle of random consolidation. If it’s at a key support = stronger signal.

2. Don’t rely on the candle alone
Verify:

• RSI in oversold territory (< 30): Boost for the rebound
• Another indicator gives you the same signal: Now it’s real

3. Wait for confirmation
The NEXT candle should be green and strong. If it’s red again, false alarm.

4. Risk management
Stop loss BELOW the low of the candle. No excuses.

Real example: Bitcoin

BTC drops for weeks → Inverted hammer appears at critical support → RSI in oversold territory → Next candle is strong green → BTC rises 15% in 3 days.

That’s the pattern working.

It’s not magic

This tool works best when combined with others. Use it as a piece of the puzzle, not as the answer to everything. Top traders see inverted hammer + strong support + RSI at the bottom + increasing volume = THEN they enter.

More info: SOL, ETH, BTC showed these patterns before their recent rebounds. Look for them on your charts.