One of many traditional candlestick charting patterns, a hammer is a reversal sample consisting of a single candle with the looks of a hammer. Figuring out hammer candlestick patterns may also help merchants decide potential value reversal areas.
Hammer candles are shaped when the open, excessive and shut are related in worth, however an extended wick, or shadow, signifies that the worth reached considerably decrease values earlier than the candle closed. Hammer candles can seem as both purple or inexperienced candles, with essentially the most qualifying issue being the ratio of the shadow to the physique of the candle. The accepted customary amongst technical merchants is that the wick under the physique of the candle be at the very least 2 instances as lengthy.
Hammer candles can happen on any timeframe and are utilized by each brief and long run merchants.
Within the instance under, a hammer candle could be noticed on the day by day Cisco Methods (CSCO) chart and value begins to vary path instantly following.
Bearish Hammer (Hanging Man)
When a hammer candle signifies a bearish reversal, it is named a hanging man. Within the instance under, a bearish hammer candle seems in the direction of the highest of an uptrend on a 5-minute IBM chart and value strikes downward following the sample.
Inverted Hammer Candles
Inverted hammer candles kind when the open, low and shut of the candle are related in worth however value reached increased values earlier than the shut of the candle. Just like conventional hammer candles, they’ll happen as each inexperienced and purple candles and assist to determine value reversals.
Bullish Inverted Hammer
Within the instance under, an inverted hammer candle is noticed on the day by day Natural Gas Futures chart and value begins to vary development afterwards.
Bearish Inverted Hammer (Capturing Star)
When an inverted hammer candle is noticed after an uptrend, it’s known as a capturing star. Within the 5-minute Starbucks (SBUX) chart under, a bearish inverted hammer denotes a change in development.
Limitations of the Hammer Candlestick Sample
Whereas the hammer candlestick sample could be helpful to merchants of all devices and timeframes, it may be unreliable as a standalone evaluation device. Affirmation with different indicators and market evaluation instruments may also help to verify or deny a commerce thesis primarily based on a hammer candle.
Distinction Between Hammer Candle & Doji
A doji is an analogous kind of candlestick to a hammer candle, however the place the open and shut value of the bar are both the identical or very shut in worth. These candles denote indecision in a market and might sign each value reversals and development continuations.
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