The Hammer Candlestick


Importantly, the upside price reversal must be confirmed, which means that the next candle must close above the hammer’s previous closing price. The Bullish Candlestick appears during a downtrend and signals buying opportunities as there is a potential bullish reversal. This candlestick has a tiny body with an extremely small or no upper wick and a significantly long lower wick.


To use this to improve your trading results, it’s important to understand its characteristics and how to use it to identify high-probability trade setups. Integrating the Hammer candlestick pattern into your trading strategy can potentially improve your trading results, as you make more informed trading decisions. To effectively use the Hammer pattern in your trading strategy, you need to understand its characteristics and how to identify it in a price chart.

This served as a signal to open a short trade with a 0.01 lot. When such a candle appears on the chart, wait for confirmation that the “inverted hammer” is bullish. For example, the appearance of a “green full-bodied bullish candle”. In addition, a small up gap between the “inverted hammer” and the candle following it can serve as confirmation.

bullish or bearish

The hammer and hanging man candlesticks are similar in appearance, and both patterns signal trend reversals. That said, one can find these two candles in different trends. On the other hand, if the price does begin to rise, rewarding your recognition of the hammer signal, you will have to decide on an optimal level to exit the trade and take your profits. On its own, the hammer signal provides little guidance as to where you should set your take-profit order.

Hammer Candlestick vs Hanging Man Candlestick

For an aggressive buyer, the Hammer formation could be the trigger to potentially go long. While both the hammer and the hanging man are valid candlestick patterns, my dependence on a hammer is a little more as opposed to a hanging man. All else equal, if there were two trading opportunities in the market, one based on the hammer and the other based on hanging man I would prefer to place my money on the hammer. The reason to do so is based on my experience in trading with both the patterns.

upper wick

You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning. SMART Signals scan the markets for opportunities so you don’t have to. Get real-time actionable trade ideas on dozens of popular markets based on historic price action patterns. It is important to always consult other technical indicators as these patterns are only gauging the market sentiment, and implying that a change in the trend direction may take place soon.

The pattern must form on a high volume at a key support level to signal a trend reversal. Monitoring subsequent price action after the formation of the Hammer pattern can provide further confirmation of the reversal signal and help traders make informed trading decisions. You should also consider other market factors, such as economic news and global events, which can have a significant impact on price movements. A hammer candlestick appeared on the chart of Exxon Mobil after six prior days of bearish candlesticks and reaching a historical support area. By being aggressive, a trader could buy the close of the hammer candlestick formation and place a protective stop loss order at the low of the hammer candlestick.

When the market found the area of support, the lows of the day, bulls began to push prices higher, near the opening price. If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. Determine significant support and resistance levels with the help of pivot points. I guess the last two example patterns in ‘The shooting star’ candlestick are interchanged.

A trader would buy near the close of the day when it was clear that the hammer candlestick pattern had formed and that the prior support level had held. If the trader had waited for prices to retrace downward and test support again, the trader would have missed out on a very profitable trade. A hammer pattern is a candlestick that has a long lower wick and a short body. With little or no upper wick, a hammer candlestick should resemble a hammer.

Is a hammer candlestick pattern bullish?

The body’s colour does not matter, but the pattern is slightly more reliable if the real body is red. The small real body is a common feature between the shooting star and the paper umbrella. Going by the textbook definition, the shooting star should not have a lower shadow.

trend reversals

To see why it’s seen as a bullish reversal pattern, we can take a closer look at the potential price action within the session. The hammer candlestick is a useful tool for a trader when determining when to enter a market. The hammer is another candle pattern that many traders rely on. It is supposed to act as a bullish reversal and testing reveals that it does 60% of the time, placing the reversal rank at 26. Once price reverses, though, it does not travel far based on the overall performance rank of 65 where 1 is best out of 103 candle types.

Hammer Candlestick Pattern: Strategy Guide for Day Traders

However, this was less successful as I opened it late, but there was a downside potential. Interestingly, the EUR rose even more than during the hourly chart analysis. Let’s look at a couple of examples of this signal on different timeframes. 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. Experience award-winning platforms with fast and secure execution.

  • Hammer candles that appear within a third of the yearly low perform best — page 351.
  • Despite being inverted, it’s still a bullish reversal pattern – indicating the end of a downtrend and the beginning of a possible new bull move.
  • When evaluating online brokers, always consult the broker’s website.
  • They can also be used to predict future market movements by looking at how they form and their shape and body.

A hammer experiences failure when a new high price is visible just after the closing and the bottom part of the hammer fails when the next candle reaches a new low price in the trend. The ABCD patternOne of the most classic chart patterns, the Forex ABCD pattern represents the perfect harmony between price and time. How to Trade Forex With NFP V-Shaped ReversalA Non Farm Payroll V-shaped reversal refers to a sudden increase or decrease in the currency pair prices right after an NFP report is released. The lower shadow should be at least twice the height of the real body. The hammer should have no upper shadow, but can have an upper shadow if it is relatively small.

The real body should be at the top of the candlestick trading range. This real body can be bullish or bearish, but preferably bullish. An inverted hammer at a support level or after a series of bearish candles is more bullish. What does the appearance of the shooting star pattern signal on the price chart? A hammer is formed at the bottom and signals the start of an uptrend. The hanging man is formed at the top and indicates a trend reversal down.

Let’s take the following example of the EUR/USD to see how to use the hammer candle in the technical analysis. As part of its characteristic appearance, it has a relatively tiny body, an elongated lower wick, and a small or no upper wick. The prolonged lower wick signifies the rejection of the lower prices by the market.

Hammers can be measured on any timeframe, but the larger the timeframe the more thorough the hammer candlestick will be due to more participants involved. It is one of the strongest candlestick patterns and signals a potential increase on the market after the market attempts to determine a bottom. This move would form a classic hammer pattern on a chart, and technical traders would then expect eurodollar to enter a new uptrend.

LCX exchange offers advanced charting where you can use various trading technical indicators and patterns to ascertain your next move. To do so, you can check if the hammer candle occurs close to the main level of a pivot point, support, or Fibonacci level. In the event of a downtrend, the presence of this candle probably means that the selling pressure has ended and that the market may now experience a sideways or upwards trade. As shown in the zoomed-in chart below, place the stop loss below this zone of support. As long as one maintains a positive risk-to-reward ratio, targets can be on the same level as the recent resistance level. is a bullish reversal pattern that develops during a downtrend. According to Nison the Japanese word for this candlestick pattern is „takuri“ which roughly translates to „trying to gauge the depth of the water by feeling for its bottom“ (p. 29). 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. They can help traders anticipate price moves and make better trading decisions. In this article, we’ve explained the hammer candlestick pattern, which is one of the most popular ones in crypto trading.

Hammer candlestick patterns are not very reliable by themselves. Traders should always combine them with other strategies and tools to increase the chance of success. Ronnie – we are discussing about the 8th candle from the right. It has formed a bullish hammer which as per the pattern suggests the trader to go long on the stock. In fact the same chapter section 7.2 discusses this pattern in detail. The shooting star is a bearish pattern which appears at the top end of the trend.


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