What is Long Upper Shadow Patterns?
Inverted hammer pattern, or long upper shadow pattern, is the opposite of the hammer pattern. Its core is a K-line with an especially long upper shadow and a very small body, as shown in the figure. This pattern appears in a downtrend.
Features of the inverted hammer pattern:
- The small body is formed in the lower price area.
- It forms after a continuous downtrend, and the opening price on the day of formation usually gaps down.
- The upper shadow is generally more than twice as long as the body.
- The lower shadow is very short, sometimes even considered non-existent.
The price is oscillating at the bottom of the market, and the bears are unable to short again; the bulls believe that the price has fallen into an oversold state and can be bought; the neutral party weighs the balance of power between longs and shorts, deems the bulls to have an advantage, and establishes a long position. Under the combined influence, the market has experienced three consecutive days of gains. The Three Red Soldiers signal that the bullish force is just beginning, and as the force continues to be released, a true rally will form.
Application strategies:
- When a “long upper shadow pattern” appears at the bottom peak of an early-stage uptrend and the peak is higher than any previous peak, take an active long position.
- When a “long upper shadow pattern” appears at a cyclical bottom point in an uptrend, especially in a heavily traded area, take decisive action and enter the market.
- When a “long upper shadow pattern” appears in a downtrend, even if there is a rebound at the bottom, it may not have much significance in a long position market because there is still selling pressure at the peak.
- When a “long upper shadow pattern” appears at the end of a long-term downtrend, it may indicate a bottom.
- When a “long upper shadow pattern” appears at the end of a large uptrend and coincides with heavy selling by market participants, reduce positions or observe from the sidelines.
Example chart:
