Hammer In Candlestick Reversal Pattern

  • Hammer is a single candlestick bullish reversal pattern. This occurs after a prolonged down trend.
  • Ideally there should be a gap down opening and bears should be able to push the price lower as a continuation of a down move.
  • At this point, bulls should overpower bears and push price higher and make close near to the opening price.
  • The candle formed in this process should be having a small body, a big lower shadow and a negligibly small upper shadow.
  • Ideally the lower shadow should be at least twice the length of the body.
  • The colour of the body can be either green or red, but if the body colour is green, then the hammer is considered a little more bullish, as the bulls were strong enough to close the price higher than the open price.
  • The next day or in next two three days, ideally there should be a gap up opening or price should move above the high of the hammer candle.
  • This is called confirmation or validation of the pattern. A hammer like candle, without validation has no real significance.
  • If price moves above the high of the hammer a buy trade can be taken with a stop loss below the low of the candle.

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