Confirming Candlestick Patterns - Inverted Hammers

I have received a lot of great feedback about this series of articles on candlestick formation. This is a neglected subject in the forex for a number of reasons. Probably the most significant reason is that most traditional candlestick formations include some kind of gap analysis. Gaps are almost non-existent in the forex but I have found through testing and experience that the absence of gaps does not seriously reduce the effectiveness of candlestick analysis. Today's pattern is a great example of why gaps are not required to be a successful candlestick analyst in the forex. Inverted hammers are the opposite of a hammer but they mean the same thing. They are bullish signals but only appear at the bottom of a trend. Like many patterns the context it is in is part of the definition of the pattern and is therefore critical to using is successfully. That means that in addition to identifying the candlestick I will need to identify the previous negative trend and wait for the confirmation of a positive candle (indicating reversal) on the next candle. In the chart below you can see a good example of this pattern on the USD/CAD. I have defined a negative trend as any period when a 10 period moving average is below a 20 period moving average. I am also waiting for the next day to have a positive close and then entering with a long position on the third day. Those are a lot of requirements and means that the total number of instances will be low, however considering the success rate of the pattern, it seems to be worth the effort to identify. To see the results of the test - click here: [url]http://www.pfxglobal.com/pfx-forex-blog/confirming-candlestick-patterns-inverted-hammers.html[/url] [IMG]http://www.pfxglobal.com/images/john/08122008invertedhammer.png[/IMG]