Inverted hammer

In financial markets, there are specific signals that can indicate a potential trend reversal. One such signal is a short-term structure on the price chart that appears after a prolonged decline. This structure is characterized by a very small main body of the price movement within the period, a significantly longer upper shadow, and an almost invisible lower shadow. The appearance of such a configuration suggests that sellers are losing control and a potential upward movement may begin. Detection of this signal involves several logical steps: Analysis of the candle’s shape: First, the ratio of the main body to the upper and lower shadows is evaluated. For a potential reversal signal, the upper shadow should be much longer than the body, and the lower shadow should be very short. This helps to distinguish random fluctuations from a true reversal signal. Verification of the preceding trend: It is important that the signal appears after a downward price movement. To confirm this, the trend of previous periods is analyzed: average prices are compared, and if a downward tendency dominates, the signal can be considered a potential start of a trend reversal. Assessment of local slope: Additionally, the short-term slope of the average price is examined. If the local slope is negative, it confirms that the signal occurs during a downtrend rather than within an upward or sideways movement. Effectiveness confirmation: Once the structure is identified, it is checked whether the price increases within several periods after the signal. If growth occurs, the signal is considered confirmed; if not, it is rejected. This way, the system evaluates not only the shape but also the practical outcome of the signal in the market. Statistical evaluation: For all detected signals, accuracy indicators are calculated: how many signals were confirmed, how many were false, and how many could not be evaluated due to insufficient data. This helps assess the reliability and usefulness of the signal for decision-making. Overall, the approach combines formal shape criteria with the analysis of the preceding trend and subsequent price movement. This combination allows for identifying true reversals with minimal false signals and provides a systematic mechanism for evaluating potential market changes. The method is not tied to specific names or classes but is based on the logic of detecting and confirming short-term signals on the price chart.