If you are a regular Swing Trader reader, then the inverted hammer should seem very familiar. However, you may not be able to put your finger on exactly why it looks so familiar.
So, why should this candle potentially set up an important reversal? My theory is that the inverted hammer is a signal that shorts are beginning to cover their positions.
Here is my reasoning. Since the inverted hammer can only occur after a sustained downtrend, the stock is in all probability already oversold. Therefore, the inverted hammer may signify that shorts are beginning to cover. In addition, traders who have held long positions in the security, most of whom are now showing large losses, are often quick to dump their shares by selling into strength. This will also serve to drive the stock back down.
With this candle, it is imperative to watch the next day's trading action. If the stock opens stronglyand remains strong during the day, then a key reversal is likely in progress.So If Rolta starts trading above 340 range then you can expect an immdiate bounce upto 374-385 levels in short term
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