Trade Currency with the Inverted Hammer

Forex traders always welcome a useful tool that makes trading currencies easier and more profitable. Sometimes the tool in question is not especially new. In fact it may be a technical analysis tool that dates back centuries! Such is the case when a trader chooses to trade currency with the Inverted Hammer. The Inverted Hammer is a Japanese candlestick signal. It is one of the dozen most used signals in the candlestick portfolio. When you trade currency with the Inverted Hammer you are looking for a symbol superimposed on the Forex price chart. The symbol looks like a hammer with the head downward. The Inverted Hammer forecasts the upward reversal of a previous downward trend. In trading Forex with candlesticks it is often just that simple. But, what are candlesticks and how do they make trading easier and more profitable?

Japanese Candlesticks

This technical method of trading emerged among rice traders in ancient Japan. The truth that these traders noticed is that price patterns tend to repeat themselves. Thus a trader can identify an emerging pattern and use it as a signal to guide further trading. This clear and easy to read set of signals is used today by traders in the stock market, commodities market, and Forex market. A candlestick is a rectangle which is typically superimposed on a price chart. The height of the candlestick indicates the opening and closing prices of the day. A white candle indicates an up and a black candle indicates a down day. The candle also has wicks (shadows) on both top and bottom ends. These indicate the total range of trading for the day. They are widely used to forecast Foreign currency rates.

Inverted Hammer Signal

To trade currency with the Inverted Hammer signal look for a fairly short candle with little or no lower shadow and a longer upper shadow. Again, it should remind you of a simple hammer resting on its head with the handle sticking up. The successfully trade currency with the Inverted Hammer one needs to make sure that the signal one is looking at fits the criteria for an Inverted Hammer. The upper shadow must be at least twice the length of the body. The body can be black for a down day or white for an up day and still be an inverted hammer. But, an up day is more indicative of a market reversal than a down day.

When this signal occurs in an established downward trend of a traded currency it is indicative of a reversal in the upward direction. The signal needs to be confirmed by a subsequent up day. When that is the case Forex traders trade currency with the Inverted Hammer on their way to profits in an upward market. As wise traders know there is no single most profitable currency pair. But, there are most profitable ways to trade any currency pair. Trade currency with the Inverted Hammer or other major Candlestick trading signals and enjoy an easy way to view the market and, very commonly, enjoy and easy path to trading profits as well.