What is a Hammer candlestick pattern?
The Hammer candlestick pattern is one of the most popular bullish reversal candlestick patterns in the world. It has an accuracy of more than 75%. This pattern is formed of a single candle.
It has a small body and a long lower shadow. The shadow is more than twice the length of the real body.
A hammer pattern appears at the end of the downtrend. Usually, this pattern is formed at the major support level. Sometimes it has very little upper shadow.
It is very important to understand the psychology behind the hammer candle. When there is a downtrend in the market, sellers try to push the market down. If there is any support level, buyers enter and pull the market up. When the market closes above the candle’s opening price, a hammer-like structure is formed.
After seeing the hammer, sellers exit their sell position and some fresh buyers enter the market and take the price higher.
The Hammer candle can be traded in any market and in any time frame. The color of the hammer candle doesn’t matter but if the hammer candle is green, that is an additional confirmation.
How to trade the Hammer candlestick pattern?
It is recommended that the price should be trading above 200 EMA because if the price is above 200 EMA it is considered as an uptrend. When the price comes down around 200 EMA or any support level we call it a short-term downtrend or pullback. If we find any hammer candle at the end of the short-term downtrend, we should think of buying it.
1. The price should be trading above 200 EMA.
2. Wait for the hammer candle to be formed at the support level. If the volume of the hammer candle is more than the volume of its previous candle, that would be an additional confirmation.
3. There are two ways to take a buy entry. The first way is simply to buy above the high of the hammer candle and the second way is to wait for the green confirmation candle that closes above the high of the hammer candle. In this article, we will follow the second approach so wait for the confirmation candle to be formed.
4. Place the buy entry above the high of the confirmation candle and place the stop loss below the low of the hammer candle.
5. Book the profit at the next resistance level.
6. Here is the real-time chart example.
Important points to remember
- The price should be trading above 200 EMA.
- Wait for the pullback up to the support level.
- Find the hammer candle with a small body and long shadow.
- The shadow should be at least twice the body.
- The volume of the hammer candle should be greater than the volume of the previous candle.
- Buy above the high of the hammer candle.
- Put the stop loss below the low of the hammer candle.
- Book the profit at the next resistance level.
- The recommended timeframe for the forex market is 1 hr or 4 hr.
Also, read about the Bullish piercing candlestick pattern
FAQ – Hammer Candlestick Pattern
Q1. what is a hammer candlestick pattern?
Hammer is one of the most popular bullish reversal candlestick patterns. It is formed of single candlestick. Usually, it appears at the end of the downtrend and the price reverses after that.
Q2. How to trade hammer candlestick pattern?
After spotting the hammer candle on the chart, make sure it is formed at the support level only. Take an entry above the high of the hammer candle or confirmation candle and put the stop loss below the low of the hammer candle. Profit can be booked at the next resistance level.
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