Hammer |
Characteristic of Candlesticks: Reversal
Relevance of Candlesticks: Bullish
Prior Trend of Candlesticks: Bearish
Reliability of Candlesticks : 2nd Grade
Confirmation of Candlesticks: Reliable
Candlestick Patterns Key Reference |
DESCRIPTION
Hammer pattern is followed by a bearish candlestick at the bottom of the downtrend followed by a gap down on and then on the way up thus forming a long shadow at the bottom and closes above the opening price with was identified as a Hammer.
Hammer pattern is an bottom reversal pattern which is highly reliable for reversing a downtrend to an uptrend.
PATTERN RECOGNITION
1. Hammer pattern can be identified by a downtrend followed by a bottom reversal.
2. Refering to above diagram, firstly we will see a bearish candlestick at the bottom of the downtrend followed by a gap down on the next candlestick.
3. Finally we will see the following candlestick move with a gap down forming a long shadow and then move up which closes above the opening price.
EXPLAINATION
The Hammer pattern is formed at the bottom of a downtrend.
The first candlestick shows a bearish candlestick which indicate sellers are currently in control.
Following candlestick open with a gap down forming a long shadow then on the way up which closes above the opening price forming a Hammer.
This clearly indicated that seller have no strength and buyers are pushing the price up forming a Hammer indicating bull is now in control.
The 2nd grade reversal patterns are reliable group of reversal patterns but require confirmation.
POINT TO NOTE
Refering to above diagram, we should note that the second candlestick can be a bullish or bearish which form a Hammer.
The hammer candlestick shadow length should be more than 2 times the length of the full body.
The Hammer pattern is highly reliable but requires confirmation. Observe the next candlestick should also be a bullish candlestick which closes above previous hammer candlestick.
CANDLESTICK PATTERNS KEY REFERENCE
Irrespective of Color (Can be bullish or bearish) |
Uptrend |
Consolidation |
Downtrend |
ANTICIPATED DIRECTION OF TREND
Lighter Arrow = Lower Probability
Solid Arrow = Higher Probability
More Likely to go sideway, Less likely to rally
|
More likely to rally, Less likely to go sideways
|
More likely to go sideway, Less likely to fall
|
More likely to fall, Less likely to go sideways |
