Like many bullish patterns, the bullish inverted hammer is preceded by some sort of downtrend. The setup day is a down day — a continuation of the prevailing downtrend. The signal day is the inverted hammer. I explain the hammer in Chapter 6, and this pattern is just an opposite version of it.
The inverted hammer has a long wick on the top, and its candle takes up a small part of the bottom of the whole candlestick. The body may be white or black, but because the high is way above the rest of the candlestick, you can tell that most of the trading activity occurs in a small area near the low. The low serves as a support level for upcoming days. Take a look at Figure 7-10 for a handy visual representation.
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