Hammer Candlestick: What It Is and How Investors Use It


Hammer Candlestick Patterns

Traders get confirmation when the candle right after the hammer closes higher than the latter’s closing price. Once the confirmation candle appears, traders exit their short position or take a long position. Individuals entering a long position can place a stop loss order below the hammer’s low price. 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. This bullish reversal pattern appears at the end of downtrends, signalling that a bear market may be about to bounce into an uptrend. The chart above of the S&P Mid-Cap 400 SPDR ETF shows an example of where only the aggressive hammer buying method would have worked.

Is a hammer bullish or bearish?

Hammers that appear at support levels or after several bearish candles are bullish. Inverted hammers at resistance levels or after several bullish candles are bearish.

Summing up, smaller timeframes make it possible to determine a favorable entry point, while the larger ones show the approximate target for opening trades. Enjoy technical support from an operator 5 days a week, from 9 a.m. Apply technical indicators, for instance, the RSI or Stochastic Oscillator, to define oversold areas.

Hammer Candlestick Explained

Upon the appearance of a hammer candlestick, bullish traders look to buy into the market, while short-sellers https://www.bigshotrading.info/ look to close out their positions. Always include the context of price action with hammer trading.

  • Like with all price action trading, these past price action indicators are not guaranteed and doesn’t mean you should jump on everything that appears.
  • In addition, a small up gap between the “inverted hammer” and the candle following it can serve as confirmation.
  • A hammer is considered more bullish, especially green, as it means “feeling the bottom with your foot” in Japanese.
  • You can find an example of the entry at significant support in the picture below.
  • Before you place your order, let’s take a look at a few practical considerations that can help you make the most of a trade based on the hammer pattern.

Instead, it has a long upper shadow where the shadow’s length is at least twice the length of the real body. The body’s colour does not Hammer Candlestick Patterns matter, but the pattern is slightly more reliable if the real body is red. The longer the upper wick, the more bearish is the pattern.

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Like any other candlestick, the hammer has both advantages and disadvantages. 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. Click the ‘Open account’button on our website and proceed to the Personal Area. Before you can start trading, pass a profile verification. Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading.

Inverted Hammer Candles

This pattern is also called a “shooting star” because it resembles a falling star with a bright trail. The formation of this pattern indicates that the bulls were trying to rise. However, this was unsuccessful, and the bears lowered the price to the candle’s opening price zone. When such a candle appears on the chart, wait for confirmation that the “inverted hammer” is bullish.

Hammer Candlestick Patterns