How to Make Money Trading with Candlestick Charts

Gap down Inverted Hammer in
Prism Cement
What a perfect visual depiction of panic
selling! The gap down on the day of the
Inverted Hammer in oversold conditions
should immediately alert the trader for a
possible trend reversal. The correct entry

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procedure would be to wait for confirmation
of buying the next day, which in this case
was pretty evident.
Figure 5.3
again shows the Prism Cement
chart, this time focusing in the June 2006
period.

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Figure 5.3:
Inverted Hammer in Prism
Cement
We witness a gap down Inverted Hammer in
oversold conditions. What should the
candlestick traders do here? They should
wait for confirmation. The next day the
buying was confirmed as shown by the white
candle. The traders are now ready to pull the
trigger. What happens then is very interesting
and worth elaborating. The day after the
confirmation, the price gaps up. Many
traders will now hesitate to jump in the
market. Their rationale being, is it worth it to
buy the stock after it has now gapped up?
Have I lost my buy point?
The key to remember is “buy strength and
sell weakness”. What the market has

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essentially shown you is strength. Listen to
the market. The market is never wrong!
Figure 5.4
 shows an Inverted Hammer in Dr.
Reddy’s Laboratories chart.
Figure 5.4:
An Inverted Hammer proved
very effective in Dr Reddy’s

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Notice the massive selling for three days in a
row before the Inverted Hammer. With
Stochastics in oversold conditions and
confirmation buying on the following day, the
market was offering a high probability
reversal scenario to the trader. You can also
notice an Inverted Hammer like formation in
the chart in September. The upper shadow
was not quite twice the body size.
Stochastics were not in oversold conditions
either.