Formation:

A Inverted hammer is formed in a prevailing downtrend and is a symbol of trend reversal. It forms when the close price of a candle is higher than its opening, and the low of the candle is equal to its opening opening price. i.e. difference between the opening and closing price is one third of the difference between open and high.

Psychology of Inverted Hammer Candle Pattern:

The market has been in a downtrend, so there is a dominance of bearishness. The market opens low and then quickly rebounds back to make a high. By the end of the day, it closes on a positive note i.e. above its open price.

The prevailing bearish sentiment has weaken until now and  most traders will be uneasy to continue with  their bearish positions.  If the close is above the open, causing a white body, it strengthens the Bullish sentiment. For confirmation one can wait for the next candle to open higher than previous close and by the end of the day for it to close even higher than its open.

The body of the Hammer can be Red (If close is less than Open) / Green (If Close is Higher then Open).