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Both umbrella and inverted umbrella are candlesticks indicating high indecision in the market; and are often interpreted as reversal patterns. Both are single candlestick patterns having a long shadow. Umbrella candlestick is a doji having a long lower shadow (thus resembles an umbrella) and inverted umbrella candlestick is a doji having a long upper shadow.


Requirements of umbrella and inverted umbrella candlestick patterns:

• The real body of the candlestick should be very small, preferably just a horizontal line.
• For umbrella formation, there should be a very long lower shadow and no upper shadow.
• For inverted umbrella formation, there should be a very long upper shadow and no lower shadow.

Umbrella candlestick forms when the sellers dominate the day to drive the price to low levels but the buyers fight back to close the day at or very close to the opening price, which is also the highest price of the day. Inverted umbrella forms when buyers dominate the day but sellers fight back to close at the opening price, which is also the lowest price of the day.

Both umbrella and inverted umbrella are considered bullish reversal patterns when they are formed at the end of a significant downtrend or after a very long bearish candlestick. Both are considered bearish reversal patterns when formed at the end of a significant uptrend or after a very long bullish candlestick. They are also important reversal indicators when formed in a support or resistance level. With both umbrella and inverted umbrella, traders should always look for confirmation of trend change.

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