Hammer candlestick pattern: explanation
Candlestick patterns are convenient structures for indicating price movement. Although it originated in Japan, it is now used by traders around the world as a technical trading tool that allows them to predict the opening, closing, and intraday price patterns in long candle-shaped patterns with upper and lower shadows. Helps to visualize the highest and lowest value of. The hammer candlestick is related to the same thing as a price pattern candlestick.
The hammer candlestick gets its name because of its unique shape. Its actual size is relatively small and it has a shadow at the bottom which is twice its size. The shape of the candles represents the opening and closing, while the shadow reflects the ups and downs of the asset’s prices. Price movement, along with the positioning of the hammer pattern, sheds light on the market when viewed in conjunction with an ongoing trend. Therefore, it is important for traders to not only be able to identify a hammer candlestick pattern, but also to understand the meaning of a hammer candlestick from a market perspective.
candlestick pattern gallery
hammer candlestick in uptrend
Hammer Candlestick Patterns Meaning
Images for Hammer Candlestick Patterns
So, what is a hammer pattern?
A hammer candlestick is a special candlestick pattern that signals a potential trend reversal. Since it forms with a downtrend, traders associate the Hammer with the return of a bullish trend in the market. It is a small green candle with a long lower shadow, symbolizing the market’s rejection of lower prices. The Bullish Hammer is more common, but traders have also recognized another hammer-like formation they have called the Inverted Hammer pattern.
The Hammer candlestick appears to be in a downtrend, suggesting bullish reversal signals. It has a small actual size and a long wick at the bottom, thus resembling a hammer. It is a green candle, unlike the other red candles that preceded it. The closing price is higher than the opening price and the long shadow indicates the presence of early sellers in the market. But in the end, the market rejects the low price, and bull force pushes the price higher.
Inverted hammer
The Inverted Hammer also appears during a downtrend, it has a longer wick upward, which differentiates it from the Bullish Hammer pattern. This also symbolizes a possible trend reversal.
The inverted hammer is a short green candle. This means that the price rose during the day, but in the end it closed just above the beginning, forming a short figure.
Explained
Traders expect a trend reversal when they see the Hammer. This occurs when the price of the asset is decreasing, indicating that the market is moving downwards and trying to change momentum.
The formation of a hammer candlestick in a decline suggests an active day in the market – the price dropped after the market opened but closed above the opening price – and all this is happening over a period of time. The position of the hammer also gives important signals. Traders consider it a strong signal if it is preceded by three or more bearish candles. Furthermore, the next candle formed after the hammer candlestick should act as a confirmation and close above the closing of the hammer candle.
When all these events occur in the same line, traders can consider it a strong signal of a potential trend reversal and enter a long position. Traders take a position to enter the market during the formation of a confirmation candle. But like other candlestick formations, the Hammer candlestick pattern should not be treated alone.
important things
The hammer is a price candlestick that signals a potential trend reversal.
It is formed around the fall
A small actual size and downward or upward shadow are typical of a hammer pattern
It symbolizes price rejection
Lower shadow is twice the actual-size
Bullish Hammer is more common, but Inverted Hammer patterns are also recognized by traders
When it is formed, traders look for confirmation, the candlestick is formed after the hammer is formed.
Conclusion
The dying candlestick signals the reversal of a bullish trend, but it must be considered with its limitations. Typically, a reversal is not confirmed until the next candle appears, which closes at a price higher than the Hammer. A hammer candle with a long shadow and a strong confirmation candle can push the price too high, making it difficult for traders to stop their declines and increasing their risks.
Furthermore, a hammer pattern does not indicate a price target. Therefore, traders seek confirmation from other trading instruments to estimate the potential risk-reward from the situation.
inverted hammer candlestick
What is Hammer Candlestick
