The Hammer is a candlestick chart trading pattern that occurs when a security’s price trend falls below its opening price. This pattern is consistently reversed, showing large lower shadows closing near the opening. This pattern creates a hammer-shaped candlestick.
In this pattern, the bottom shadow is twice the size of the actual body. The body of the candle symbolizes the difference between the opening and closing prices. The shadows indicate the lows and highs for that hour.
Hammer candlesticks occur when prices fall, and sellers step into the market at that time. As the market approaches, buyers will come under selling pressure to push the rising price closer to the opening price.
This closing price can be below or above the opening price. The lower shadow should be twice as tall as he is on the actual body. Hammer candlesticks symbolize the potential for the price to move upwards.
Bullish Hammer Candle Formation Pattern
Initially, a hammer candle is forming. An uptrend is a candlestick reversal pattern with a small body above the candlestick and a large shadow below. The price changes from a bearish to a bullish trend when a hammer candlestick pattern is generated. Hammer candles are also associated with bullish headers. On the price chart, they show the same reversal trend.
Identifying Hammer Candles
Spotting hammer candles on the price chart is easy, but identifying the correct candlestick pattern can be very difficult. Market Chios confuse traders and face great difficulty in choosing the correct candlestick pattern. Three factors help in identifying the correct hammer pattern.
1- Candlestick structure
2- Where the candlesticks are placed.
3- Prev Trend
1- Construction ( Structure)
Hammer Candles consist of a large shadow at the bottom of the entire candle. It should cover 60-70% of the total candlestick size. A small body forms at the top of the candlestick, with little or no shadow at the top of the body. The color of hammer candlesticks does not affect performance very much. It can be green or red, but the structure of hammer candlesticks cannot be ignored. This is the main concern when identifying hammer candlestick patterns.
2- Candlestick Position
According to the price chart, it is important to note where the candlestick pattern is. It helps clarify the correct pattern on the chart. As for Hammer Candles, they must be crafted in the Demand Zone or the Support Zone.
3-Previous Trend
The Trend before the hammer pattern is bearish in nature.
It should be done after 2 or 3 bearish candlesticks occur. If a formation occurs within range, the hammer pattern message will change. It can no longer provide a bullish trend reversal.
Hammer Pattern Instructions for traders
It is very important for professional traders to learn the process that takes place at the bottom of the chart. For example, if a pin bar formation occurs on the chart, it becomes important for the trader to know about the activity of sellers and buyers on the back side of the candlestick chart.
Traders who value price action usually use this method. In a hammer pattern, sellers, with the help of fake special support, scramble to make a bearish trend dominant once a fake bearish move occurs.
Enter the market with potential and gain seller power to push the market to a basic starting level. The price closes above the 61.8 Fibonacci level below the full range of the candlesticks. This shows that the support zone buyers are stronger and stronger.
Because of this, the price bounces off the support zone, causing a bullish trend reversal. Strong confirming candles and hammers with large shadows can push the price higher on two timeframes. At this point, the Stop Loss may appear quite far from the entry point, warning the trader that he or she may miss the potential reward.
Therefore, it is difficult to grasp the potential rewards of hammer trading.
Hammer Candlestick Pattern for Day Trading Strategy
It is not possible to create a strategy using only one candlestick pattern. Rather, it always comes from the fusion of different technical tools. Furthermore, it increases your chances of winning. By adding risk management tools, traders can create strategies that help them win trades.
Hammer Candlestick as Support Zone
The best confluence of the candlestick pattern is a resistance or support zone. Support zones ensure how effective bullish trend reversal candlestick patterns are. When both patterns form at the same point on the chart, the likelihood of a bullish trend reversal increases immediately. This is a simple strategy to anticipate future trend reversals.
Open a buy trade
When the bullish hammer candlestick pattern forms, the trader should take the following steps.
1- Stop must hold his loss on the lower side of the hammer candlestick.
2-Traders should choose a conservative method if they do not have much trading experience.
Hammer’s Psychology
The Hammer pattern usually forms in a downtrend or when the chart breaks below its lows or highs. When the Hammer appears, it means that bullish investors are locking down stock positions.
A large shadow below the hammer candlestick indicates that efforts are being made to keep price action down. A higher closing hammer represented by body proper indicates that sellers are pushing the price at intraday lows.
Financial Instruments Supporting the Hammer Candlestick Pattern
The Hammer Candlestick Pattern works on candlestick charts of all financial instruments worldwide. There are two reasons for this.
1- Price action patterns form this pattern.
2- Shows the natural function of the market.
Conclusion
Candlestick patterns are important for predicting trends in financial markets. Traders can use candlesticks to predict trends and apply strategies in the possible directions of that Trend. Traders learn this strategy and follow it to increase their chances of winning.
Bullish hammer candles are available on charts with huge varieties. There are no separate methods to use hammer candlesticks in different financial markets. Their interpretations are the same in all markets. Only analysis related to stock requires more data. Traders can increase their trade by using the correct methods of hammer candlesticks’ usage.
