Hammer candlestick, a bullish trend reverser candlestick pattern has a longer shadow than the lower and smaller body at the top. The price transforms its bearish tendency into a bullish one by forming the “hammer” candlestick pattern.
Bullish pin bars can also be influenced by the Hammer candlestick. Both indicate the exact trend reversal as shown on the price charts. This candlestick pattern is widely used by retail traders to forecast the market’s future trend reversals.
This article will teach you about the hammer pattern’s structure, importance, and trading strategy in forex or stock trading.
What is the best way to recognize a hammer candlestick
Although it’s easy to spot a Hammer candle in the price chart, it can be difficult to recognize a good pattern for candles. The market is noisy and will make it hard to pick the right candlestick patterns.
We will be discussing three confluences in order to determine if a good pattern for hammering is possible:
- The structure of a candlestick
- Placement of the candlestick
- Previous trend
A long shadow is visible on the lower half of the total candlestick for the hammer-style candlestick. Long means it should be more than 60 to 70% of the full candlestick size—a small body forms at the top of the candlestick with little or no shadow above the body.
Tip: Hammer candlessticks are not affected by their color. You can choose from red, green or any other color. However, the main point of attention should be the candlestick’s structure.
It is important to determine the exact location of candlestick patterns in the price chart. The confluence of these two parameters will help filter out the bad patterns from the rest.
A hammer candle should be formed at the demand or support zone in the above example
Bearish is the prior trend in the hammer design. This pattern must be formed after at least two or three bearish candlesticks have been made.
If the pattern forms in the range, the feeling of the hammer will change completely and it won’t give rise to bullish trends reversals.
Tower Bottom Pattern Information Table
What is the significance of the hammer motif for traders?
Professional traders must be able to see the process behind each chart.
Professional traders should be able to identify the buyers and sellers of candlestick charts, for example, when a pin bar appears or an engulfing candlestick forms. This is the preferred method for pro-price movement traders.
The sellers did their best to preserve the bearish tendency in the case with the hammer patterns. Buyers enter the market full force after a prolonged bearish move that saw the support zone falsely broken. From the support zone, the buyers dominate the seller’s power and push the market up to starting level. Then price closed above the 61.8 Fibonacci level of the total candlestick’s range. This indicates that buyers have regained their power and strength after the support zone. That’s why the price will bounce from the support zone, and a bullish trend reversal will happen.
The hammer candlestick is a good indicator of the trend reversal.
Day trading strategy for the hammer candlestick design
In this strategy, you’ll learn to trade with this candlestick pattern.
A strategy can’t be made using just one pattern of candlesticks. A strategy is made from the combination of at least three technical instruments. This will improve your chances of winning. We can also make winning strategies by adding risk management tools.
Support zone: Hammer candlestick
Since the support and resistance zones are the best combination of candlestick patterns, the hammer candlestick will only be used when there is an intersection of both the support and resistance zones.
Support zone is a confirmation of bullish trend reverse candlestick pattern. The bullish trend reverses in both technical tools. If the support zone and the bullish pattern form at the exact same place on the chart, then the chances of a bullish trend turning are increased.
To predict future trends reversals within shorter timeframes, retail traders employ this simple strategy.
Buy and sell open
Open a pending stop just a few pip above the top candlestick if a bullish-hammer candlestick pattern appears on the price charts. Place your stop loss at the lower end of the hammer candlestick, or in the support area. You should always choose the conservative way to set stop loss if you don’t have much trading experience.
The role of candlestick patterns is crucial in trend prediction for financial markets. We can use candlesticks to forecast the trend and then follow the trend in lower time frames. For a higher winning rate, traders should use this multi-timeframe strategy.
Also, I recommend that you test the candlestick pattern properly once you’ve learned about the psychology. This will help improve your trading skills.
Is there a difference in a candlestick with a pin bar bullish candlestick and one that is a hammer or a candlestick with a pin bar bullish? The bullish pinbar and hammer have a distinct name. They are identical in structure, significance, and location. Both patterns are bullish trend-reversal candlesticks.
Professional traders recommend that you learn how candlesticks work and not just their names. There are many candlestick patterns and it is difficult to remember them all. However, if you know the market behaviour you can forecast the actions of every candlestick pattern. What color should the bullish hammer patterns be? The color of the hammer candlestick does not matter in technical analysis; only the price chart’s location, structure, and prior trend matter. You can choose between a green or a red small body. This indicator will show a bullish trend in the price chart. How do financial instruments help the hammer candlestick design? This pattern, known as the Hammer pattern, will be used on every candlestick chart for any financial instrument. This pattern shows market behavior because it is a price action pattern. It doesn’t matter if you trade stocks or forex. It’ll work perfectly.