Hammer Candlestick Definition
The Hammer is a candlestick chart pattern that forms at the end of a downtrend and signals a bullish reversal. The name of the pattern reveals that the market is hammered at the bottom. the Hammer candlestick is recognized as one of the most popular candlestick patterns.
- The Hammer is a single candlestick pattern
- The Hammer is a bullish reversal pattern
- The pattern will appear at the end of the bearish trend and the pattern will indicate a bullish reversal trend.
- The opposite pattern to the Hammer is the Inverted Hammer.
Hammer Pattern Explanation
The Hammer is a bullish reversal candlestick pattern that is formed with a single candlestick. The actual body of the candlestick is small and resides at the top of the candle. There is a shadow under the actual body of the candlestick that makes up almost twice the size of the actual body. The completion of this candlestick will indicate that the market will enter a bullish reversal.
The easiest way to detect a pattern on the charts is to look for candlesticks similar to the letter “T” (if a candlestick closes like this at the end of a downtrend you could expect a bullish trend). Just like any other candlestick, you can find a hammer at any time frame. Don’t use a hammer as only confirmation for entering the trade! Always use multiple sources for reliable confirmation.
After downtrend if we notice Hammer it will indicate bullish trend, check image above to see how it look like at market.
Advice: always wait for conformation (means the candle needs to close in our example from the first picture). Most beginners make mistake and open the position before the candle is closed because they think it is the hammer, and a few minutes later same candles close in a different shape.
Placing Stop Loss and Take Profits
Stop loss should be always a few pips below the lower shadow (image below). If the market is not volatile and besides the hammer, we have extra confirmation from other indicators or technical analyses this should be a safe place. There is a slight chance that something went wrong if we plan to trade correctly.
Since this is educative material and we don’t have live examples it is impossible to set up take profit. Take profit to have nothing with this pattern, it should be part of our trading strategy. We will explain more about trading strategies and placing take profit in other topics.
Same body as the hummer (bearish candle). Bearish reversal trend.
Opposite than hanging man pattern.
The Main Differences Between Doji and Hammer
When you are new to trading Doji (dragonfly from the image below) can confuse you. But there are two main differences. The first, Doji has upper and lower shadows, while the hammer don’t have an upper shadow at all or the upper shadow is really small. The second difference is a body, Doji doesn’t have a body at all, because the price was open and closed at the same price.
The Difference Between Hanging Man and Hammer Candlestick
While Hammer appears at the end of the downtrend, Hanging Man will appear at the end of the uptrend. Hummer is a bullish candlestick, Hanging man is the bearish candlestick. That would be the main difference.
Trading Education Media Kit
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