Hammer Candlestick


This is a definite bearish sign since there are no more buyers left because they’ve all been overpowered. A typical example of confirmation would be to wait for a white candlestick to close above the open to the right side of the Hammer. Just because you see a hammer form in a downtrend doesn’t mean you automatically place a buy order!

candlestick pattern

What is a hammer candlestick?

A hammer candlestick is a technical trading pattern that resembles a “T” whereby the price trend of a security will fall below its opening price, illustrating a long lower shadow, and then consequently reverse and close near its opening. Hammer candlestick patterns occur after a downtrend. They are often considered signals for a reversal pattern.

The hammer candlestick is a bullish pattern that can signal the end of a downtrend and the start of an uptrend. Trading strategies that include trading hammer candlesticks must always have a plan in place for managing risk. Typically, yes, the Hammer candlestick formation is viewed as a bullish reversal candlestick pattern that mainly occurs at the bottom of downtrends. However, most traders are wary of acting solely on the Hammer indicator and are advised to seek other indicators like the prior days’ Doji formations to confirm the possibility of an uptrend. Overview This script trades basic hammer and shooting star candlestick patterns. It’s an extremely simple strategy with minimal filters, and according to my personal manual backtesting and automated trading results, performs best on the Daily chart on certain forex pairs.

The hammer candlestick occurs when sellers enter the market during a price decline. By the time of market close, buyers absorb selling pressure and push the market price near the opening price. The Hammer candlestick is also relevant to the bullish pin bar. Retail traders widely use this candlestick pattern to predict the upcoming trend reversals in the market. One of the key advantages of the hammer candlestick pattern is that it can be used in any timeframe, similar to the bullish engulfing pattern. This makes it a versatile tool for both day traders and swing traders alike.

A new https://forexarticles.net/ appears rejecting this resistance, giving you another short entry opportunity. At a minimum, I always want a hammer candle to be as big as the recent candles on the chart if I am going to use it as an entry or exit signal in my trading. The overall shape of the hanging man looks quite similar to a hammer candlestick. It also helps to support the region and signals that the downtrend is over and all the short-selling positions should be closed now. This script uses the corrent and the previous two bars to compute the strength of pin bars. The strength of pin bars can be also comared with average true range, so we can evaluate those pin bars are strong or weak.


This action by the bulls has the potential to change the sentiment in the stock. Notice the blue hammer has a very tiny upper shadow, which is acceptable considering the “Be flexible – quantify and verify” rule. A hammer occurs after the price of a security has been declining, suggesting that the market is attempting to determine a bottom.


Since the close price will come near to the open price, as a trader, you will want to enter the market and buy more USD/EUR positions with an expectation of a market reversal. The reversal will be confirmed on the next candlestick, which will be a bullish candlestick with a higher open price of 1.9. Hereon, the prices of USD/EUR will continue to increase and reach a level equal to or beyond 3, signaling profit-taking opportunities for you. The above process is a simple foundation on how to trade the hammer candlestick formation, go give it a try on a demo account and hunt down those hammer candlestick formations. A green hammer is a hammer candle with a closing price higher than the open.

What Is a Hammer Candlestick?

In technical analysis, no patterns have 100% success, and the mistake that many traders make is to think that a single pattern can tell them everything about the market. I also recommend you backtest the candlestick patterns properly after learning the psychology of each pattern because this will improve your trading skills significantly. The location of the candlestick pattern on the price chart is one of the essential parameters. This confluence will filter the good patterns from the crowd on the chart. They have small bodies with long lower wicks, very little or non-existent upper wicks, and signal a potential reversal in the current trend.

In this guide, I’ll share what I know about the hammer candlestick pattern with over 11 years of experience behind the trading terminal. Some are more reliable than others, but the hammer candlestick pattern is a very popular and accurate formation. A trade can be initiated after the formation of a hammer candlestick. Takinglong positions, therefore, taking the very start of the trend can provide strong profit margins to a trader. Many bullish traders enter a trade after the formation of the hammer candlestick. There is also an Inverted Hammer candlestick pattern, which looks like a reversed Hammer.

Still, some types of Doji patterns can have a resemblance to a hammer pattern. These types of dojis are known as the dragonfly and gravestone doji. A dragonfly doji has a very small body on the top while a gravestone doji has a very small body and a long upper shadow. One of the effective tools in this decision-making process is price action trading strategies. This trading strategy usually identify market movements based primarily on the preceding price variations.

reversal signal

They can also be used to predict future market movements by looking at how they form and their shape and body. These products are not suitable for all clients, therefore please ensure you fully understand the risks and seek independent advice. Here is an example of a support level giving a boost to a hammer pattern. As long as the lower wick pierces the support level, and the body of the wick closes above the support level – you got a good signal there.

Longer Lower Shadow is More Bullish

Thus, the bearish advance downward was rejected by the bulls. In contrast, when the open and high are the same, the red Hammer formation is considered less bullish, but still bullish. Forex and CFDs are leveraged products and can result in losses that exceed your deposits. Hammers are most accurate when preceded by three or more consecutive declining candles.

Moreover, this pattern shows that sellers or bears entered the market, pushing the price, but the bulls absorbed the pressure and overpowered them to drive up the price. West Texas Intermediate crude oil price fell during the 3rd week of August 2022. However, the market swiftly recovered, showing some signs of life. However, if the support level breaks, the price can plunge to $80.

  • While hammers still show you some clear intention – buyers and sellers are fighting, but you can still foresee who will win, Dojis show extreme uncertainty.
  • The body of the candlestick represents the difference between the opening and closing prices, while the shadow shows the high and low prices for the period.
  • This means that buyers attempted to push the price up, but sellers came in and overpowered them.
  • The picture above shows an example of placing a Buy Stop order with a Stop Loss and Take Profit after the Hammer Pattern appeared during the downtrend.
  • Of course, we still haven’t discussed trailing stoploss yet.
  • If it forms within the range, then the sense of hammer pattern will completely change and fail to give a bullish trend reversal.

An example of these clues, in Chart 2 above, shows three prior day’s Doji’s that suggested prices could be reversing to an uptrend. For an aggressive buyer, the Hammer formation could be the trigger to potentially go long. The Hammer helps traders visualize where support and demand are located. After a downtrend, the Hammer can signal to traders that the downtrend could be over and that short positions could potentially be covered.

The high of the shooting star will be the stop loss price for the trade. For the risk-averse, a short trade can be initiated at the close of the next day after ensuring that a red candle would appear. The method to validate the candle for the risk-averse, and risk-taker is the same as explained in a hammer pattern. Short Line Candles – also known as ‘short candles’ – are candles on a candlestick chart that have a short real body.

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This https://forex-world.net/ pattern is bullish because not only are sellers unable to push the price lower, but the buyers push the price back up aggressively and close the candle well-off lows. This type of price action is typically a bullish sign and tells us that buyers are in control. An inverted hammer tells traders that buyers are putting pressure on the market. It warns that there could be a price reversal following a bearish trend.

This is one of the most common https://bigbostrade.com/ patterns and it is often seen in bearish trends. An inverted hammer at a support level or after a series of bearish candles is more bullish. The main difference is that a hammer candlestick leads to an uptrend whereas the hanging man leads to a downtrend.

Is a hammer candlestick pattern bullish?

The hammer candlestick is a bullish trading pattern that may indicate that a stock has reached its bottom and is positioned for trend reversal. Specifically, it indicates that sellers entered the market, pushing the price down, but were later outnumbered by buyers who drove the asset price up. Importantly, the upside price reversal must be confirmed, which means that the next candle must close above the hammer’s previous closing price.

The Inverted Hammer occurs when the price has been falling suggests the possibility of a reversal. Its long upper shadow shows that buyers tried to bid the price higher. Both candlesticks have petite little bodies , long upper shadows, and small or absent lower shadows.

Another similar candlestick pattern to the Hammer is the Dragonfly Doji. Most traders will wait until the day after a Hammer pattern forms to see if a rally continues or if there are other indications like a break of a downward trendline. Fibonacci RetracementFibonacci retracements are one of the most popular methods for predicting currency prices in the Forex market. Predicting upward or downward market movement can help traders with accurate price analysis for exiting or entering the market. Top Pullback Trading StrategiesPullback trading strategies provide traders with ideal entry points to trade along with the existing trend.

Like the Hammer, an Inverted Hammer candlestick pattern is also bullish. The Inverted formation differs in that there is a long upper shadow, whereas the Hammer has a long lower shadow. The Inverted Hammer candlestick formation typically occurs at the bottom of a downtrend.

money when trading

After a long bearish move with the false break of a specific support level, buyers come into the market in full force. From the support zone, the buyers dominate the seller’s power and push the market up to starting level. Then price closed above the 61.8 Fibonacci level of the total candlestick’s range.

Combined with other trading methods such as fundamental analysis and other market analysis tools, the hammer candlestick pattern may provide insights into trading opportunities. This article will take you through what hammer candlestick patterns are and how to read them. Apart from the Hammer candlestick, a Doji has a tiny body or no body at all. This type of candlestick shows market indecision when neither bulls nor bears dominate. A single Doji is neutral, but if it appears after a series of bullish candles with long bodies, it signals that buyers are becoming weak, and the price may reverse to the downside. Alternatively, if Doji forms after a series of bearish candles with long bodies, sellers are losing their strength, and the price may rise.

I accept Client Agreement/Terms and Conditions and all risks related to trading operations. This article will tell you about an indicator created especially for trading indices- the Advance/Decline line. DTTW™ is proud to be the lead sponsor of TraderTV.LIVE™, the fastest-growing day trading channel on YouTube. You can also check if the overbought signal results from the RSI, CCI, or stochastic indicator.

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