Candlesticks

Introduction to Hammer Candle

In this module, we are going to discuss the Hammer candle, which gives a very strong signal of a trend reversal (probably to uptrend). We'll show you what this looks like, its characteristics, and valid conditions for this candle.
Furthermore, we'll delve into the psychology behind the Hammer candle and explore future predictions associated with it.

The first thing we want to cover with you is what Hammer candle actually is.

A Hammer candlestick occurs during an downtrend and indicates the possibility of a counter-trend (i.e reversal to uptrend). A Hammer candle is made up of just one candle.

Most traders believe that a candle can only be classified as a true hammer if its bottom wick is twice the size of its body section and if the body is situated towards the upper end of the trading range.

Hammer Candle Anatomy

Hammer Candle Decoding — Hammer Candle Anatomy

In candlestick analysis, it's an uncommon occurrence to come across a pattern that accurately resembles its name, but the Hammer pattern is one such exception, with a small, plump head and a lengthy handle, resembling an actual hammer.

The candlestick can be classified as a Hammer candle only when it appears in a declining market.

Blueprint of a Hammer on chart

Hammer Candle Pattern on chart — Hammer Candle Anatomy

Characteristics of a Hammer

Hammer candle can be green or red.
Very small, or no upper shadow.
The range of a Hammer candlestick pattern is wide, it indicates that there was significant price movement during the trading session, which can be seen as an indication of high volatility.
The color of the real body is not important, it can be green or red.
The Hammer candlestick pattern is typically observed in an uptrend.
For a Hammer candlestick pattern, the lower shadow should be at least twice the height of the real body.
The real body is situated at the top end of the day's range.

Conditions for Hammer to be valid

The color of the body in a Hammer candlestick pattern is generally considered to be less important than other aspects, but a green body can be interpreted more positively than a red body.
One possible outcome after the formation of a Hammer candlestick pattern is that buying activity continues in the next trading session.
The stock must have been in a definite downtrend before this signal occurs. This can be visually verified on the chart.

Predictions:

Hammer candle gives a strong sign for a trend reversal to uptrend. The presence of a gap can strengthen the signal provided by a Hammer candlestick pattern.

Next In Line

Doji Candlestick

Doji is a very powerful candle shows a balance of supply and demand.

Hanging Man Candlestick

Hanging Man candle which gives a very strong signal of a trend reversal.

Inverted Hammer Candlestick

This candle implies a very strong signal of a trend reversal (to uptrend).

Moving Average Indicator

This indicator is used on charts for trend identification.