Hammer Candlestick Pattern
Hammer candlestick patterns are a type of bullish reversal candlestick patterns. When a Hammer candlestick pattern develops at the end of a long, protracted downtrend, I get excited. This candlestick is on my short-list of favorite candlestick patterns and set-ups to find on a stock chart.
When a Hammer candlestick pattern meets all the requirements and characteristics listed below, it typically represents an excellent buying opportunity.
Remember to always use a scale-in strategy and never purchase all your shares at once. Look under the "Trading Strategies" title below for specific trading strategies and high probability set-ups that I see develop for candlestick patterns below.
In general though, Hammer candlestick patterns present opportunities to purchase shares and go long on a stock. As with any candlestick pattern, it is important to know the support or resistance area for that particular candlestick.
The term "Hammer" indicates that the share price is trying to "hammer" out a bottom. From a visual perspective, the candlestick has the appearance of a "hammer" with a long handle. The longer the handle, the better.
The long lower shadow of a Hammer candlestick pattern is usually caused by a day of capitulation. Capitulation is defined as selling pressure that occurs on extremely heavy volume. After the share prices has been driven down by all the selling pressure, buyers step in and start purchasing shares faster than the sellers are selling.
This wave of buying then takes the share price all the way back towards the opening share price from the beginning of the trading session. This trading activity creates the long lower shadow and small real body for the Hammer candlestick pattern.
Following are the requirements for a Hammer candlestick pattern.
- A Hammer candlestick pattern is a bullish reversal candlestick pattern
- The real body can be either green or red colored, but the opening and closing share prices must be near each other creating a very small real body
- The length of the lower shadow must be at least twice the length of the real body
- The candlestick must develop at the end of an easily identifiable downtrend
Hammer candlestick patterns with smaller real bodies tend to perform better than Hammer candlestick patterns with larger real bodies.
The minimum ratio of the lower shadow length to real body length is…....
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- characteristics and my personal observations about the candlestick
- the support areas for the candlestick
- how to effectively trade a Hammer candlestick pattern
- live chart examples
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