As a forex trader, you may have come across the term “upside down cross” or “inverted cross.” This term is used to describe a particular candlestick pattern that may indicate a potential reversal in the market. In this article, we will explore what an upside down cross is, how to identify it, and what it may mean for your trading strategy.
What is an Upside Down Cross?
An upside down cross is a bearish candlestick pattern that forms when the opening price of a candlestick is higher than the closing price, and the candlestick has a long upper shadow and a short lower shadow. The long upper shadow represents the sellers’ attempts to push the price higher, while the short lower shadow shows that buyers were not able to push the price up. This pattern is also known as an inverted hammer.
To understand the significance of the upside down cross, it is important to know that candlestick patterns are formed due to the interactions between buyers and sellers in the market. When buyers are in control, the price tends to rise, and when sellers are in control, the price tends to fall. The upside down cross is a pattern that may indicate a shift in control from buyers to sellers.
How to Identify an Upside Down Cross
To identify an upside down cross, you need to look for a candlestick with the following characteristics:
1. The opening price is higher than the closing price.
2. The candlestick has a long upper shadow and a short lower shadow.
3. The candlestick has a small real body.
4. The candlestick appears after a bullish trend.
Once you have identified these characteristics, you can confirm the pattern by checking the previous candlestick. The previous candlestick should have a bullish real body, indicating a bullish trend. The upside down cross should appear immediately after this bullish candlestick.
What an Upside Down Cross May Mean for Your Trading Strategy
The upside down cross is a bearish reversal pattern that may indicate a potential shift in control from buyers to sellers. This means that the market may be about to reverse from a bullish trend to a bearish trend. If you are a short-term trader, you may consider taking a short position when you see this pattern.
However, it is important to note that the upside down cross is not a foolproof indicator of a market reversal. Like all technical indicators, it is subject to false signals and market volatility. Therefore, it is important to use other technical indicators and fundamental analysis to confirm your trading decisions.
Conclusion
In conclusion, the upside down cross is a bearish candlestick pattern that may indicate a potential reversal in the market. It is formed when the opening price of a candlestick is higher than the closing price, and the candlestick has a long upper shadow and a short lower shadow. If you are a short-term trader, you may consider taking a short position when you see this pattern. However, it is important to use other technical indicators and fundamental analysis to confirm your trading decisions.
