A hammer is a price pattern in candlestick charting (that resemble hammers) that occur when a security trades significantly lower than its opening, but rallies within the session to close near opening price. This pattern forms the hammer-shaped candlestick, where the lower shadow is at least twice the size of the body of the candlestick. The body of the candlestick represents the difference between the open and closing prices. The shadow or wick shows the high and low prices for the period. Hammer Patterns can indicate a potential price reversal, make sure to look for confirmation when trading hammer candlestick patterns.
Hammers occur when the price moves significantly LOWER at the open. Then rallying HIGHER through the session to close near the open. Bears came into the session, the bulls took over and the trend remains bullish.
The hanging man pattern occurs when the price moves significantly LOWER at the open before it rallies HIGHER throughout the session. Unlike the hammer, the hanging man closes the session a bit lower, turning it red.
Inverted hammers occur when the price moves significantly HIGHER at the open before sliding LOWER throughout the session to close near the open. Bulls may have taken control over the price for a little bit of time, but bears fought to control the session and kept prices lower.
The shooting star pattern occurs when the price moves significantly HIGHER at the open before falling LOWER throughout the session. Unlike the inverted hammer, the shooting star closes a bit lower, turning it red.
These are the basic four hammer patterns you must know as a trader. The more you learn, the more you earn! If you have any questions or comments about hammer candlestick patterns, feel free to use the contact form below to get in touch with us.