Hammer Candlestick Pattern
Hammer is a price trend reversal pattern in Japanese candlestick charts. It occurs when a security trades substantially lower than its opening, but rallies to close close to its opening price.
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Hammer
There is a hammer candlestick pattern in the lower shadow that is at least three times as large as the body. The real body of the candlestick represents the difference between the open and closing prices, while the shadow represents the highs and lows for the specific period.
Complete and Perfect Theory of Hammer Candlestick Pattern
Hammers are price bullish patterns and are trend reversible patterns in candlestick charting. Already we were uploading videos for trend reservable patterns. Kindly follow them.
The candlestick looks like a hammer, since it has a long shadow at the base and a short body at the top. A hammer’s body is three times shorter than its shadow. The lower shadow must be twice the size of the body portion of the candle. This is not correct, it may be a pattern failure.
The size of the hammer should be three times larger than the body. The shadow must be three times larger than the body portion of the candle if the close can be above the open. The closing price should be higher than the open.
Theory of hammer
A hammer form in a lower trend of the chart is an indication of a potential bullish reversal pattern. During the period, sellers entered the market, but by close they had been absorbed and buyers had pushed the price back to near the open.
Hammer candlesticks indicate a possible price reversal to the upside. When the price starts moving up, you get a confirmation of the hammer candle.
Confirmation of hammer candle
According to some traders, confirmation occurs when the next candle of hammer crossing closes above the closing price of the hammer. This is not true.
A confirmation occurs if the next candle of hammer crosses the line of previous candles of hammer resistance or the high price of previous candles. This confirmation candle shows strong buying and the hammer signaled a possible price reversal to the upside.
The Candlestick traders will typically look to enter long positions or exit short positions during or after the confirmation candle. For those taking on new long positions.
Stop loss of hammer
You can place the stop loss below the low of the hammer’s shadow.
Time frames of Hammer
Hammers can be seen on all time frames, including one-minute charts, daily charts, and weekly charts.
Entry and exit of hammer
Hammer candlestick pattern entry is between the low price of the previous candle and the high price of the current candle.
Hammer candlestick pattern is entered between the low price of shadow on the previous candle and the high price of hammer candlestick pattern.
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